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Barrick: A Conservative Bet on Gold
02/18/2016 7:00 am EST
In times of global turbulence, gold offers a safe haven. Global instability causes currency instability and the safe place for assets becomes gold, asserts Todd Shaver, editor of The Bull Market Report.
The cost of storing gold has become almost irrelevant in an environment of zero interest rates.
There is also the potential of inflation. Global quantitative easing has resulted in trillions being poured into the world’s money supply without any measurable increase in inflation.
Gold represents a hedge that sometime in the future there will be an excess of capital chasing too few of goods and services.
In a commodity-based business where there is limited ability to manage market pricing, the measure of a company is how it manages operating costs and leverage.
In this regard, Barrick Gold (ABX) is among the best. It is a conservative way of investing in the upside for gold.
Non-core assets of the company have been sold off and debt substantially reduced. Even at the current price of gold, Barrick Gold earnings and cash flow are surging.
Barrick has 14 mines, located in Canada, the United States, Peru, Argentina, Australia, the Dominican Republic and Papua New Guinea.
It also holds a 64% equity interest in Acacia Mining (ACA:L), a British company which owns gold mines and exploration properties in Tanzania, Kenya, Burkina Faso, and Mali.
Barrick produced 6.1 million ounces of gold in 2015 and 500 million pounds of copper. Expect gold production to remain at this same level for 2016.
The company is gearing for an average price of $1,000 per ounce for the immediate future but with a 20% increase over the long-term.
It is a real challenge to know when to buy growth stocks. For commodity and other heavy cyclical companies, the answer is a whole lot easier. It is when profits are in the tank.
Barrack operating losses peaked in 2014 at $3 billion. With the sale of assets, and with balance sheet restructuring, profits are now moderately back in the black.
The company is in good shape to surprise investors on the upside if gold prices remain stable or rise from here.
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