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Barrick Gold Corporation (USA) (ABX): Is It an Oversold Value Pick or an Unsafe Falling Knife?

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Toronto-based mining giant Barrick Gold Corporation (USA) (NYSE:ABX) has not had a very good start to the year. In addition to intense downward pressure on gold prices that has sent stocks of virtually every gold-exposed miner into the basement, Barrick has had to deal with some regulatory and debt-related setbacks. Recently, the company announced that it would be suspending production at a supposedly lucrative mine in Chile due to a politically motivated court ruling in that country. At this point, it seems doubtful that the company will be able to restart construction at the mine until late 2013 or early 2014. Given the overtly political nature of the approval process, additional delays are possible.

Barrick Gold CorporationMeanwhile, Barrick’s overwhelming debt has led it to put three high-quality Australian sites on the auction block. Although falling gold prices will hurt these mines’ long-term viability, Barrick Gold Corporation (USA) (NYSE:ABX) clearly would not want to part with them under normal circumstances.

Amid all this tumult, investors have a right to ask themselves whether Barrick is destined for the scrap heap. There is a wide range of opinion on this matter, and it is crucial that investors get all of the facts before committing to a specific course of action. Although the gold mining industry is notoriously dependent on “on-the-ground” conditions that cannot be gleaned from simple financial statements, a quick comparison between Barrick Gold Corporation (USA) (NYSE:ABX) and two of its close competitors is warranted.

Recent Problems

Barrick Gold Corporation (USA) (NYSE:ABX) has more to worry about than its debt load. The recent court decision to halt work on the company’s Chile project did little to resolve the overarching issues surrounding the mine. Given the relative newness of the regulatory authority that will issue a long-term ruling on the project this summer, it is difficult to impossible to predict the final outcome of this case. Market-watchers should not be surprised if the regulator moves to impose punitive or unreasonable penalties on Barrick. By contrast, the agency could decide that Barrick Gold Corporation (USA) (NYSE:ABX) has done enough to mitigate its environmental concerns and move to reopen the mine without imposing harsh penalties. Since Barrick has made a good-faith effort to cooperate with the agency’s demands, this outcome might be in the cards.

Separately, the Australian situation has troubled long-term Barrick Gold Corporation (USA) (NYSE:ABX) investors. In a perfect world, the company would continue to operate these profitable mines. However, they are not absolutely essential to its business model. Moreover, their sale will bring in some much-needed capital for the company. If there is any solace to be gained from this development, it lies in the vigor with which Chinese mining companies seem to be pursuing assets in Australia. Barrick Gold Corporation (USA) (NYSE:ABX) can be virtually assured of finding a suitable buyer for its Australian properties.

Falling Gold: The Other Problem

Of course, the spot price of gold has collapsed by nearly 25 percent over the course of the past 12 months. This has driven down the stocks of most gold miners, including Kinross and Goldcorp (NYSE:GG). However, Barrick Gold Corporation (USA) (NYSE:ABX)has fallen by more than its peers thanks to its perfect storm of debt and regulatory setbacks. Since touching a high near $55 per share in mid-2011, the company has slumped to around $20 per share.

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