Gold Review: Is It Too Late To Buy African Barrick Gold PLC?

goldGold has fallen 1.4% to $1,292 per ounce so far this week, leaving the share prices of exchange-traded gold funds trending lower.

The $34bn SPDR Gold Trust (NYSE: GLD.US) ETF is down by 1.6% so far this week, at $124.35, leaving it up by 5.4% so far this year. Similarly, a London-listed alternative, Gold Bullion Securities (LSE: GBS), has fallen 1.5% at $124.06 since Monday, leaving it up by around 7% so far in 2014.

African Barrick lifts guidance and declares dividend

African Barrick Gold (LSE: ABG) published a healthy set of half-yearly results today, and raised its full-year production guidance from 650,000-690,000 ounces, to more than 700,000 ounces.

Crucially, today’s results revealed that the firm’s all-in sustaining costs of mining — a standardised, fully-inclusive measure that’s best practice in mining reporting — fell by 25% to $1,118 per ounce, putting African Barrick’s operations firmly into profit.

As a result, the firm reported operational cash flow of $127m, a 28% increase on the same period last year, despite the fall in the price of gold over the same period. The firm also declared an interim dividend of 1.4 cents per share (around 0.8p), using a revised formula based on free cash flow, rather than earnings — sensible stuff.

All of which is good news — but why hasn’t the stock popped?

Already in the price

African Barrick shares have already risen by around 130% over the last year, and to be honest, I think all of today’s good news is already in the price.

The company’s valuation is in-line with its book value, it trades on a forecast P/E of 15 and offers a prospective yield of less than 1.5%. Even allowing for some modest upside based on today’s figures and increased production guidance, I don’t think there’s much left in the tank.

With big cuts to expansionary expenditure, there’s no reason to expect a step-change in production or earnings capacity over the next couple of years, meaning today’s valuation looks pretty full. In my view, anyone who bought in at last year’s lows should congratulate themselves and think about taking some money off the table.

Reinvest in new growth opportunities

African Barrick was a brave 'conviction buy' a year ago, but now looks like a safe bet, meaning that for growth or turnaround investors, it may be time to reinvest profits in a new opportunity.

One such opportunity is "The Motley Fool's Top Growth Share For 2014" -- a high-tech British manufacturer which small-cap expert Maynard Paton believes could report a sharp upturn in profitability this year, leaving this growth stock poised to deliver 'double-digit total returns' to shareholders.

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Roland Head has no position in any shares mentioned. The Motley Fool has no position in any of the shares mentioned.