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Stock to watch: Barrick Gold hits 5-year lows, but turnaround looms

An Africa Barrick Gold mine in Tanzania. Barrick, the world’s largest gold producer, could become prey for a state-owned enterprise.


Barrick Gold Corp.

Thursday's close: $30.98, up 17 cents

52-week trading range: $30.75 - $49.93 a share

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Annual dividend: 0.814 cents a share annually for a yield of 2.6 per cent

Analysts' ratings: There were 15 buys, 13 holds and no sells, according to Bloomberg data. Target prices ranged from $37.63 a share by RBC Dominion Securities analyst Stephen Walker to $58.19 a share from Stifel Nicolaus analyst George Topping.

Recent history: Shares of the world's largest gold producer, which hit a 52-week low this week, have shed about 34 per cent (including dividends) over the past year. Investors have been concerned about Barrick's focus on growing reserves as opposed to return on capital, as well as its rising debt load and acquisitions that have not lived up to expectations. Talks to sell its stake in African Barrick Gold PLC to China National Gold Group Corp. broke off earlier this year. It also hasn't helped that the price of gold plunged this week to below $1,600 (U.S.) an ounce from a high just under $1,800 last September. Against a backdrop of a stagnating share price, Barrick installed Jamie Sokalsky last summer as the new chief executive officer. The former Barrick chief financial officer has vowed to cut costs and sell off non-core assets. Last week, the miner reported a fourth-quarter loss of more than $3-billion after taking a massive writedown on its struggling copper mine in Africa that it bought at the top of the market.

Manager insight: Barrick shares are now trading at the lowest level since the 2008 financial crisis, but the company is also at an "inflection point," says Robert Gill, a portfolio manager with Aston Hill Financial Inc., and a recent buyer of its shares. "They have had a number of missteps...But they have changed their management team, and the focus from speaking about being the biggest and best gold company to talking about shrinking in size, but increasing profitability."

Mr. Gill, who met with Barrick managers recently, likes the new direction. "We like the focus on free cash flow, profitability, increasing the dividend yield and returning cash to shareholders," he said. "What you are going to see management do is focus on developing resources in the more safe regions of the world, and also try to stick to the projects with higher return on capital and lower costs to develop."

Management has been approached by potential buyers for some assets, so it may be able to get rid of some properties and get the cash to reduce debt, and return some of it back to shareholders, Mr. Gill said. "When we met with them, they said that everything is for sale at the right price."

Barrick shares are very inexpensive now, trading at around seven times earnings, he said. "We think the stock should be worth north of $40 (Canadian) a share. We'd like to see that within a year, but it is going to take a couple of quarters for investors to basically trust management...I think it [Barrick] is really ripe for a turnaround."

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