Barrick Gold falls partly on mine work suspension
NEW YORK (AP) — Shares of Barrick Gold declined Friday as the mining company suspended work on a South American mine and announced plans for a $3 billion stock sale to help repay debt.
THE SPARK: Barrick Gold Corp. said Thursday that it suspended construction work on its Pascua-Lama mine on the border of Chile and Argentina. The project may resume if the outlook for metal prices improves, Barrick said. The suspension will cut Barrick's capital spending by $1 billion next year.
The same day, Barrick announced that it was selling 163.5 million shares at $18.35 each. It is also giving the underwriters a 30-day option to buy up to 24.5 million more shares.
THE ANALYSIS: Sterne, Agee & Leach's Michael Dudas supports suspending work at the South American mine, saying in a client note that it allows the company "to proceed with development under a more effective, phased approach at a more opportune time."
The analyst kept a "Neutral" rating.
Brian Yu of Citi Investment Research said it appears spending for the project was going to run over budget and there were new permitting hurdles to contend with.
The analyst reaffirmed a "Buy" rating and trimmed Barrick's price target to $21 from $22.
But Peter Ward of Jefferies said he was disappointed that Barrick is suspending work at the mine.
"Execution has been very poor so far at this highly attractive deposit," he wrote.
But Ward said that he still likes Barrick because of its low gold costs and copper exposure.
The analyst said the company's planned stock sale is a smart move considering uncertainty around the South American mine, relatively high valuation of gold equities and market concerns over Barrick's debt.
"To us, it makes sense to prepare the company for what could be an extended period of low gold prices," Ward said.
The analyst said he now thinks concerns over Barrick's balance sheet are overblown, given that it has very few debt maturities in the next few years.
Ward maintained a "Hold" rating and $17 price target.
SHARE ACTION: Down $1.38, or 7.1 percent, to $18.01 in midday trading. The shares are off 45 percent so far this year.