World’s Largest Gold Miner Signals Bearish Outlook

by on November 2, 2013 5:59 pm GMT

Barrick Gold Corp. is the world’s largest gold miner and is looking to issue at least $3 billion to reduce debt as a result of gold’s horrendous performance this year. The gold miner has to scrap the Pascua-Lama project in South America due to continuous delays and increasing operating costs that have reached in the billions.

The risky but potentially profitable project was projected to produce 850,000 ounces of gold annually for the first five years. However, problems with permits have delayed the costly mining site. Since the decision to suspend the project, Barrick shares fell as much as 8.1 percent on October 31. Shares have fell 22 percent this year, correlating with the decline in gold.

“We have determined that the prudent course – at this stage – is to suspend the project, but naturally we will maintain our option to resume construction and finish the project when improvements to its current challenges have been attained,” Chief Executive Jamie Sokalsky said in a statement.

The suspension of the project is looking to free up $1 billion in capital spending plus $500 million in savings from organizational restructuring. Analysts believe that this would halt any cash raising attempts, but it is suspected that Barrick is worried about their credit rating.

The cash-raising equity issuance may also signal Barrick’s outlook on gold prices as lower bullion prices begin to erode profits as operating costs increase. John Goldsmith, Monstusco Bolton Investment Inc., believes “It signals that Barrick’s board, at the margin, has become much more bearish on commodity prices.” He continued to say “to come out with a deal as dilutive as this is, views must have changed somewhere among top-level management and the board.”

The short-term weekly shows price action dropping heavily on the bearish news of a secondary issuing of stock and the suspension of the Pascua-Lama project. The ascending trend line extending from the five year low will determine whether or not price is supported at these levels. If not, nearest support for Barrick is at $17. However, a downside target of $15.39 is established.

1W Chart of Barrick Gold Corp. (ABX)

1W Chart of Barrick Gold Corp. (ABX)

The weekly chart spanning five years shows a potential rebound area of resistance at $19.13. Friday’s decline was on volume of 145, 753,550 shares versus the previous session’s trading volume of 67,545,246 shares.

1W Chart of Barrick Gold Corp. (ABX)

1W Chart of Barrick Gold Corp. (ABX)