With the price of gold shooting above $1,000 an ounce in recent days, you would think shares of Barrick Gold (ABX), the world's largest gold producer, would be hitting new highs as well. That isn't happening. So far, Barrick has yet to overshoot its 52-week high of 40 a share, closing at just a tad below, 39.97, on Oct. 13. The stock hit an all-time high of 54 in 2008.

Some analysts expect Barrick to climb back to that level—or even higher—in 12 months.

The stock's performance is impressive as it is, having come up from a 52-week low of 17.27 on Oct. 24, 2008. Gold bulls say Barrick deserves to go much higher, and they figure it will, since they are certain the price of the precious metal will continue to soar.

"This [rising price of gold] isn't a temporary situation, as we believe gold will stay above $1,000 an ounce for a long while because of the depressed dollar and global investors rushing to buy gold as a store of value and a hedge against inflation," says Arnold Schmeidler, president of investment management firm A.R. Schmeidler.

He figures there will be "catch-up value" in Barrick's stock when the company's operating margins start to widen as a result of the hike in gold prices.

Direct Bottom-Line Benefit "For investors who expect a sustained strength in gold prices, the large-cap gold producers, such as Barrick, represent a compelling value," says Jared M. Levin, portfolio analyst at Schmeidler, which owns shares. Barrick, like Newmont Mining (NEM), generates operating profit margins in the mid-20s as a percentage of revenues, notes Levin. A sustainable increase in the price of gold of around 10%, he says, would flow directly to Barrick's bottom line, representing a 40% increase in operating profits.

If investors were to take that into consideration, they would be buying shares of Barrick and Newmont, So far, he says, the market isn't giving credit to the potential value of Barrick and Newmont for a $1,000-plus price of gold on a sustainable basis, argues Levin. Barrick recently bought out a part of its long-standing gold hedge book—covering the prices it would receive for future gold sales—to give itself more upside exposure to the rising price of gold.

Analyst David Haughton of BMO Capital Markets says it isn't easy for Barrick, as the world's largest gold producer, to find enough projects to continue expanding. He notes that some growth investors are impatient and want Barrick to continue showing robust growth.

Haughton says Barrick is up to the challenge. It has a portfolio of 27 operating mines and seven advanced exploration and development projects in North America (37%), South America (36%), Australia (14%), and Africa (13%).

Reserves Are Expanding As of the end of 2008, the mines produced about 7.66 million ounces of gold at a total cost of $43 per ounce. Its proven and probable gold reserves totaled 138.5 million ounces, up from 124.6 million ounces at yearend 2007.

Barrick has several new projects under way that should continue to expand its reserves, says Haughton, who rates the stock a buy with a 12-month target of 52.50 a share. Recently the company agreed to buy Xstrata Copper's (XTA.L) 70% stake in the El Morro gold and copper mines in Chile for $465 million. "Barrick is paying an attractive price for what could eventually evolve into a key growth project," says Steven Butler, metals analyst at Canaccord Capital (CCI.TO).

Rating Barrick a buy with a 12-month price target of 50, Butler says Barrick "remains our top pick among the senior producers based on relative valuation and superior net-asset-value leverage to a higher gold price."

Some analysts are convinced that with the Federal Reserve and foreign central banks engaged in massive spending, which the analysts fear could result in an inflationary environment, a gold price above $1,000 an ounce is sustainable.

If they are right, large gold producers such as Barrick would regain some of their luster on Wall Street.

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