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?
Pascua-Lama problems
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.
