Barrick Gold Corporation (USA) (ABX): Will This Gold Producer’s Rally Continue?

The biggest problem, however, is the weak gold market and the tumble in gold price, which, in July, was nearly 22.5% below the price of gold in the third quarter of 2012. The company’s profit margin in the first quarter reached 39%, which is 7 percentage points below the profitability in the first quarter of 2012. If the current price of gold remains at its current range, the company’s profitability may range between 30% and 35% in the coming quarters. The all-in sustaining costs of production are expected to range between $950 and $1,050 per ounce. Therefore, if the price of gold dwindles below $1,100, it could become unprofitable to produce gold.

Barrick Gold Corporation (USA) (NYSE:ABX)’s recent delay in its Pascua-Lama project in Chile and Argentina will free up some cash for the company by approximately $700 million-$800 million in 2013 and approximately $0.8 billion-$1.0 billion in 2014. This decline in capital expenditure in these years will ease up the company’s cash flow constraint and enable it to allocate these funds towards developing new projections or paying out some of its loans.

The company’s copper business is doing a bit better even though this segment accounts for 12% of its total revenue. The company projects its average production will be 9% above last year’s production. Conversely, the decline in copper price will eliminate some of the gains in copper production.

Takeaway

The recent recovery of gold hasn’t impressed investors that continue to slowly move out of gold ETF. The current low gold price, along with the expected decline in gold production, is likely to adversely affect Barrick Gold Corporation (USA) (NYSE:ABX)’s bottom line. Finally, its upcoming quarterly earnings report is likely to show a decline in revenue and narrower profit margins, which could bring down the company’s stock.

Lior Cohen has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Lior is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.

The article Will This Gold Producer’s Rally Continue? originally appeared on Fool.com and is written by Lior Cohen.

Copyright © 1995 – 2013 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.