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Barrick Gold Corp. has received plenty of criticism from the investment community over the past few years, much of it deserved. But few have been as thorough and pointed as Macquarie Capital Markets analyst Ron Stewart.
Over the course of a 17-page report released Wednesday, he argued the battered stock should still be avoided, even though it has already dropped more than 70% over the past three years, and pointed to a lot of faults at Barrick: lack of growth, excess debt, poor strategic clarity, operating risk and a head office that appears to be in turmoil.
Nearly every sell-side analyst calls Toronto-based Barrick a buy or a hold. But Mr. Stewart downgraded it to underperform with a target of $11 a share, noting the company has “limited options” to repair its balance sheet and needs more time to regain investor confidence.
“Miners are known for their ability to dig holes; big miners dig big ones,” he said in the report. “Barrick, the biggest gold miner on the planet, however has dug itself into a huge financial hole that is going to be difficult to get out of any time soon unless metal prices improve.”
Of course, he noted the company’s two biggest errors of the last few years: the botched construction of the Pascua-Lama project in South America and the $7.3-billion purchase of the Lumwana mine, which is set to be shuttered because of a massive royalty hike in Zambia.
Mr. Stewart estimated that these two investments cost the company US$15.9-billion, and resulted in an astounding US$14.2-billion of writedowns. He expects Barrick to take yet another impairment charge on Lumwana in its fourth-quarter results — this one worth about US$2.5-billion.
But writedowns are old news and already baked into the stock price. A bigger concern is how Barrick is going to improve its shrinking production profile and troubled balance sheet down the road.
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