Barrick Gold, After Goldman Sachs Upgrade and With or Without Newmont

By Jon C. Ogg Published Aug 8, 10:51AM EDT

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Barrick Gold Corporation (NYSE: ABX) was added to the prized Conviction Buy List at Goldman Sachs on Friday. While the rating was already a “Buy” with a $21 price target, the price target was increased by $1 to $22 in the call. Friday’s analyst move does highlight at least some more potential upside here for the gold mining giant. The call does not really revolve around any rekindled merger talks with Newmont Mining Corp. (NYSE: NEM), but there is more than a casual overlap to consider here.

Andrew Quail was the analyst responsible for the Goldman Sachs call, and the addition had Barrick Gold shares up almost 2% at $18.85 after about an hour of trading on Friday. There were several driving forces and catalysts behind the call.

One force was an improving operations effort, with core assets making up about 80% of cash flows. This was also expected to bring about lower production costs.

Another force is an inflection point in free cash flows. The firm sees positive free cash flow in the third quarter, and sees over $5 billion in free cash flow over the next five years.

Portfolio optimization was also cited as a driving force. This includes divesting non-core assets, and ultimately lower debt and improved flexibility.

What 24/7 Wall St. would point out is that this was not the first analyst nod this week. RBC Capital Markets has an Outperform rating and raised its target price to $25 from $23 earlier in the week. The firm noted that Barrick is doing just fine on its own – even if Newmont Mining hinted that it may still be somewhat interested in a merger with Barrick.

While Barrick shares were at $18.85 on Friday morning, its 52-week range is $15.26 to $21.45 and the consensus price target is almost $20.25. We would point out that the RBC target of $25 is also at the highest of all Barrick analysts covering the stock.

As far as how this plays into the notion of any rekindled gold merger, well Barrick is worth roughly $22 billion. Newmont Mining is worth ‘only’ about $13 billion – and Newmont is much farther down from its 52-week high at $26.40 versus a 52-week range of $20.79 to $34.27. The Thomson Reuters consensus analyst price target is only $27.13, and the highest analyst price target is up at $33 for Newmont.

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While many investors may be hoping that the Goldman Sachs move to the Conviction Buy List rekindles Barrick-Newmont merger hopes, it seems as though investors should keep focusing on each of these two companies on a standalone basis rather than as a merger situation. Goldman Sachs does not add companies to the Conviction Buy List based solely upon merger hopes. That being said, anything remains possible.

About the Author Jon C. Ogg →

Jon Ogg has been a financial news analyst since 1997. Mr. Ogg set up one of the first audio squawk box services for traders called TTN, which he sold in 2003. He has previously worked as a licensed broker to some of the top U.S. and E.U. financial institutions, managed capital, and has raised private capital at the seed and venture stage. He has lived in Copenhagen, Denmark, as well as New York and Chicago, and he now lives in Houston, Texas. Jon received a Bachelor of Business Administration in finance at University of Houston in 1992. www.247wallst.com.