Barrick Gold Corporation (USA) (NYSE:ABX) has announced a massive impairment in its second quarter earnings report. This came as no surprise. The drop in gold prices has caused the company to write down $8.7 billion from its balance sheet. On the other hand, Barrick Gold reported adjusted earnings of $0.66 per share. The company made money from its operations in the quarter, despite the low gold price environment. Its stock has lost more than 50% this year. Is it time to take a closer look at Barrick?
Most of the impairment came from the troubled Pascua-Lama project. Barrick Gold Corporation (USA) (NYSE:ABX) had to write down $5.1 billion because of it. The company plans to finish the water management system on the project by the end of 2014, and hopes to comply with Chilean regulations. Pascua-Lama is a huge project that has 18 million ounces of proven and probable gold reserves, as well as 700 million ounces of silver. The expected mine life of the project is 25 years.
The worst that Barrick Gold Corporation (USA) (NYSE:ABX) could have said is that it decided to give up on it. Fortunately, this did not happen. Shareholders of Silver Wheaton Corp. (USA) (NYSE:SLW) and Fluor Corporation (NEW) (NYSE:FLR) must be satisfied with this decision. Silver Wheaton is a silver streaming company that has bought the right to buy silver from Pascua–Lama when it starts operating. As Pascua-Lama has significant silver reserves, it is a valuable asset for Silver Wheaton. The company would buy the contract amount of silver from other Barrick’s mines until Pascua-Lama starts production. Silver Wheaton has been under pressure this year, as gold and silver prices dropped–the stock has lost 38%.
The company’s business model does not involve mining operation. It is a distinctive advantage among silver miners and makes Silver Wheaton Corp. (USA) (NYSE:SLW) a unique way to play silver. The company’s dividend is tied to its fiscal performance, which brings flexibility and financial safety. The stock is trading at a forward P/E of 18, and its performance mostly depends on the price of silver.
Fluor Corporation (NEW) (NYSE:FLR) has been awarded a contract for construction at Pascua-Lama project. The company has been doing fairly well this year, and its stock is up 14%. The situation with Pascua-Lama is common in the mining industry, as projects are delayed for various reasons. Unfortunately, Fluor has recently reported its second-quarter results and missed analysts’ estimates. The steady growth in the oil and gas sector was offset by the weakness in the mining sector. However, the $37 billion backlog suggests a solid future for the company. Fluor trades at an attractive 14.41 forward P/E. Analysts’ mean target price suggests a 12% upside. This target is surely reachable.