Wall Street rebounds, Dec. 15-19

The U.S. market climbed into positive territory following higher oil prices and the U.S. Federal Reserve reporting that it was in no hurry to raise interest rates. 

The S&P 500 Index jumped 3.4% to 2,070.65 points, its second-best week this year, and the Dow Jones Industrial Average advanced 3% to 17,804.80 points. Gold fell US$27.60 per oz. to US$1,194.20, while the Philadelphia Gold & Silver Index stayed flat at 69.36 points. 

Barrick Gold was one of the most traded stocks. The gold producer is suspending its high-cost Lumwana copper mine in Zambia after the government’s move to increase the royalty rate to 20% from 6%, while eliminating the corporate tax. Analysts estimate the new tax regime, effective Jan. 1, 2015, will make the mine unsustainable, pushing costs above US$3 per lb. copper.

If the royalty rate isn’t revised, Barrick expects to start laying off the mine’s 4,000 workers and contractors in March and transition to care and maintenance in the second quarter. Barrick cautions it may write down the mine’s US$1-billion carrying value in the fourth quarter of 2014.

“While it remains to be seen if the government relents on its decision, we believe operations at Lumwana will eventually resume given the potential negative consequences for the Zambian economy,” CIBC analyst Alec Kodatsky writes. He has a $15 price target and “sector performer” rating. Barrick fell US64¢ to US$10.83, as 125.4 million shares changed hands. 

Alderon Iron Ore was the week’s percentage winner, gaining 74% to close at US44¢. The Vancouver-based firm implemented a cash-preservation program “until 2017”, including staff reductions, payment deferrals and relief from debt-servicing requirements. 

Alderon will keep its core team to line up financing for its 75%-held Kami iron ore project in the Labrador Trough. China’s Hebei Iron & Steel Group Co. holds the rest. Desjardin analyst Jackie Przybylowski says the company could raise $1 billion in debt and $600 million in equity for project. She expects development to resume at Kami in 2016, with first production in 2018. Przybylowski has a “buy-speculative” rating and $2.30 target on the stock, noting her valuation assumes Alderon will secure financing for Kami.