Goldman Sachs: Barrick Gold Has 32% Upside

The Brexit is now a reality, with UK’s vote going in favor of a departure from the EU. Investors reacted with “a flight to safety,” resulting in a decline in US 10-year treasury yields from 1.74 percent to 1.57 percent, driving gold prices up about 5 percent on June 14. Goldman Sachs’ Andrew Quail said in a report that their Precious Metals coverage view had been raised from Neutral to Attractive.

The Goldman Sachs Commodities team believes that gold prices would be determined by “the intensity and duration” of the Brexit-related uncertainties and any potential revisions to the US growth outlook. The team raised its gold price forecast for 2016, 2017 and 2018 from $1,202 to $1,260, from $1,150 to $1,261 and from $1,150 to $1,250, respectively.

Barrick Gold

Analyst Andrew Quail maintained a Buy rating for Barrick Gold Corporation (USA) ABX, while raising the price target from $23/C$30 to $27/C$35. The analyst added the stock to the Conviction List, citing their “more constructive view on gold prices.”

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Quail believes Barrick Gold is posed to outperform, as “gold price fundamentals stabilize and the self-help idiosyncratic story continues to gain momentum.” He expects Barrick Gold to generate more than $1bn in FCF over the next 12 months, which would enable the company to further delever by on net debt and EBITDA.

There are potential positive catalysts for the company over the next year. Even after the strong share performance year-to-date, the stock continues to trade at a discount of about 20 percent to the global peer group, despite its “strong self-help story and low cost asset base,” the analyst commented.