Gold’s shimmer is losing its luster. And as gold grows more dull, Barrick Gold Corporation (USA) (NYSE:ABX) feels more and more pain. Barrick Gold Corporation (USA) (NYSE:ABX) is running into considerable trouble as gold, its primary commodity, falls down from the stratosphere.
In 2012, Barrick Gold Corporation (USA) (NYSE:ABX) , which is the world’s largest gold miner, saw its market cap dip below that of much smaller mining company Goldcorp Inc. (USA) (NYSE:GG). At that time, Barrick Gold Corporation (USA) (NYSE:ABX)’s market cap was $35.30 billion while Goldcorp Inc. (USA) (NYSE:GG)’s cap was $35.32 billion. As both companies continue to fall, the gap is widening. Today, Barrick’s cap is $18.69 billion compared to Goldcorp Inc. (USA) (NYSE:GG)’s $23.91 billion. Respectively, the reductions represent a 47% and 32% decrease in value.
Meanwhile, the gap in net income is also widening. In 2012, Barrick Gold Corporation (USA) (NYSE:ABX) reported a loss of $0.67 billion, compared to Goldcorp Inc. (USA) (NYSE:GG)’s profit of $1.7 billion. Fastforward to the second quarter of 2013, and things get worse for Barrick. For the second quarter, Barrick Gold Corporation (USA) (NYSE:ABX) posted a massive loss of $8.56 compared to Goldcorp Inc. (USA) (NYSE:GG)’s loss of just $1.93 billion
Now, is Barrick about to rebound? No. Here are three reasons that this stock isn’t going to hit the jackpot any time soon.
1. Trouble in Chile
In May, the Chilean government fined Barrick $15.8 million for “serious” environmental violations at the large Pascua-Lama mine. Before handing out the fine, Chilean officials forced Barrick to suspend operations until the environmental issues are resolved. According to Barrick, there was a problem with the mine’s water management plan. Today, the mine is still shut down, further delaying an opening originally scheduled for 2014.
Anytime a mine isn’t running, we have a problem. But a mine of this size presents an especially big problem. With production of up to 850,000 ounces of gold per year, the Pascua-Lama mine is to count for 11% of Barrick’s overall gold production. 11%. The project is huge, and the situation isn’t getting better. Barrick says it will submit a new water plan soon, but how soon? Will it pass the environmental board’s standards? There’s just too much uncertainty surrounding this project. I don’t like it.
In addition, as the opening is delayed further, costs are going up. Already the estimated costs rose 34% to $8.5 billion, and more increases are likely. Some have even speculated that Barrick may scrap the project. However, Silver Wheaton Corp. (USA) (NYSE:SLW) – a mining finance company involved in Pascua-Lama – said in a statement that Silver Wheaton Corp. (USA) (NYSE:SLW) remains confident about the project’s future.
