The keys risks to our investment thesis on GOLD include commodity exposure, political risk (particularly with its Africa operations) & operating risk. If the impact from the risks outlined turns out to be greater/less than estimated, the shares could fail to reach/exceed our target price.
Metals Pricing Volatility – Gold pricing is driven by a number of market factors including mining output, scrap availability, central bank sales and US inflation rates. A significant decline in the price of gold due to any combination of these factors could reduce GOLD's realized pricing and sales volumes. However, an increase in the gold price would be a benefit. GOLD is also exposed to volatility in copper & silver pricing.
Mining Operations – The company's mining operations are subject to variability in ore quality and structural issues which could potentially decrease production volumes and increase unit costs. However, better ore quality and structural efficiency would be a positive and constitutes an upside risk.
Projects – Barrick has projects in the pipeline that have execution risks. The process to bring a development project to production has many hurdles including project financing, permitting, regulatory compliance, staffing and construction. Any unexpected issues or delays could affect project delivery, increase project development and operating costs, and reduce the NPV of projects.
Synergies from Randgold merger – If synergies from the Randgold merger turn out to be more or less favorable than we expect, the shares could perform better or worse than our target price.
|