Barrick Gold remains a hold

The Investment Reporter,, MPL Communications Inc.
133 Richmond St.W., Toronto, ON, M5H 3M8. 1-800-804-8846

Key stock Barrick Gold is earning far less these days. It angered big investors by issuing 163.5 million new shares. While this raises cash to repay debt, it also dilutes existing shareholders at low price. Barrick Gold remains a hold for a price recovery and dividends.

Barrick Gold, one of our Key stocks, earned much  less in the first nine months of 2013. It also sold 163.5 million shares at a low price. The shares remain on hold for a long-term price recovery and dividends.

In the first nine months, Barrick Gold earned an adjusted $2.163 billion, or $2.16 a basic share (all figures in U.S. dollars except for the share price). This was down by nearly 23 per cent from adjusted earnings of $2.797 billion, or $2.80 a share, a year earlier.

For all of 2013, Barrick Gold is now expected to earn $2.21 a share. That’s down by more than 42 per cent from $3.82 a share. The recent share issue will increase the number of shares outstanding. Spreading the earnings over more shares will reduce the earnings per share, all else being equal.

Barrick Gold says that the issuance of shares raised gross proceeds of $3 billion. It writes that this will “strengthen its balance sheet and improve the long-term liquidity position of the company by using approximately $2.6 billion of the net proceeds to redeem or repurchase outstanding debt.” As a result, credit-rating agencies other than Moody’s are unlikely to cut its credit rating for now.

The big new share issuance is unpopular

Many major investors were annoyed by Barrick Gold’s issuance of the shares. This dilutes their holdings in the company. Also, issuing shares when the price is low is unattractive. The brokerage firms could not sell all of the shares. That’s partly because Barrick Gold’s share price fell well below the offering price of $38.35 on the newly-issued shares. The company is not on the hook for any losses, because it sold the shares to the brokerage firms. But this is bound to put Barrick Gold in the bad books of some members of the financial community.

As long as Barrick Gold’s new shares remain unsold, it attracts short sellers. They profit from a lower share price. With brokerage firms becoming desperate to sell, the share price could fall further.

Barrick Gold also suspended work on Pascua-Lama, its large gold and silver project on the border between Argentina and Chile. It has taken an impairment charge of $5.1 billion on Pascua-Lama. On the positive side, suspending construction will reduce demands on its cash by up to $1 billion in 2014.

BARRICK GOLD CORP. C$19.16 (Quality Rating: Conservative; Sector: Resources; TSX—ABX; T: 416-307-7422; remains a hold for a long-term share price recovery and dividends.

The Investment Reporter,, MPL Communications Inc.
133 Richmond St.W., Toronto, ON, M5H 3M8. 1-800-804-8846

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