Positive outlook & costs update from African Barrick

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As the shares in ABG continue to droop – now trading at less than one third of the price at the start of the year when the national Chinese group – China National Gold broke off bid talks (and with the price mooted to be around 450-500p), todays announcement by the company should reassure bulls of the stock (including us).

Greh Hawkins

Commenting, CEO Greg Hawkins said: “After a challenging period in 2012, it has  been encouraging to hit our targets in the last two quarters. We have made significant improvements to the Buzwagi operation, while North Mara is performing well and Bulyanhulu is on track for recovery. We are making good progress on cost reductions through the Operational Review and we are well

underway with a complete life of mine review of the assets.  We have moved to shut our high cost mine at Tulawaka, are on track with our expansion project at Bulyanhulu and are determined to ensure that ABG can generate robust cash flows over the long term”. 

With cash backing approach 70p per share and management unprepared to sell to the Chinese around the 450p level, making at the time what now seems an incredulous statement in looking at the stock price – “We will only proceed with opportunities that generate acceptable value for Barrick” shareholders have every reason to ask what management are going to do in adding extra impetus to arrest the stock price decline. We would not rule out parent company Candian Barrick making an offer for the remaining minority stock of 26%.

We scratched our heads at last week’s Goldman Sucks price target of 100p which would value their entire mine complex at just £180m adjusted for cash –  a discount to net tangible book (cash adjusted) of an amazing 90%. That was the final buy signal to us! With the valuation metrics below that are, by anybody’s stretch of the imagination, at the extreme end of the value range, it utterly perplexes us why any fund manager would be selling the stock here.

We continue to believe that the stock is putting in a basing formation and that it is ripe for a very sharp rebound back over 200p in the near term.

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