Company Overview: Barrick Gold Corporation (NYSE: GOLD) is involved in the business of gold mining and is primarily focused on developing and owning the best assets to provide sustainable returns for owners and partners. The diversified portfolio of the company contains various gold districts with high-margin and long-life assets. The company has projects in 13 countries in North and South America, Africa, Papua New Guinea, and Saudi Arabia.

GOLD Details

Improved Leverage Position and Decent Cash Position Aid GOLD: Barrick Gold Corporation (NYSE: GOLD) is engaged in the business of gold mining and focused on finding, developing, and owning the best assets to deliver sustainable returns for owners and partners. As on 21 April 2021, the market capitalization of the company stood at ~$40.44 billion.  Recently, the company updated the market with its preliminary results for 1QFY21. The company opines that it is well placed to achieve its production outlook in FY21. The company reported preliminary 1QFY21 sales of 1.09 million ounces of gold and 113 million pounds of copper. The company also reported its preliminary production for gold of 1.1 million ounces and copper of 93 million pounds in 1QFY21. The average market price for gold and copper during the quarter stood at $1,794 per ounce and $3.86 per pound, respectively.

The company expects its gold production in the 2HFY21 to be better than the 1HFY21. Likewise, 1QFY21 gold cost of sales per ounce is projected to be moderately higher.  Total cash costs per ounce in 1QFY21 is projected to be 2-4% higher, whereas all-in sustaining costs (AISC) per ounce are likely to be 8-10%, higher than 4QFY20. In the 2HFY21, the company expects copper production to be better than 1HFY21, owing to higher grades from Lumwana.

Despite the COVID-19 crisis crippling the global economies, the company reported an increase of 91.2% year over year in its operating cash flows to $5.417 billion in FY20 and a record level of free cash flows of $3.363 billion, reflecting an increase of 197% year over year. This was mainly due to higher gold prices and increased royalty costs. Annual gold mine production over the period of 2010-2020 witnessed a CAGR of 2.1%, from 2,750 tonnes to 3,401 tonnes.

Annual Gold Mine Production (Source: Company Reports)

The company remains on track to gain from robust gold and copper production as well as higher gold prices. Better than expected performance from Pueblo Viejo, ongoing progress at Turquoise Ridge and the ramp-up of mining operations at Bulyanhulu are key positives for the company.  In 2020, gold was on a stellar run as coronavirus pandemic fear made it the most desirable safe-haven asset.  Further, the ultra-low interest rate environment, decline in crude oil prices, and geopolitical tensions drove up demand for gold. The company’s averaged realize price of the gold went up by ~26.2% from the prior corresponding period in 4QFY20. The trend is expected to continue in FY21 along with margin expansions.

Key Highlights of 4QFY20 Results: During the quarter, the company reported an increase in revenue to $3,279 million, up 13.7%year over year. In the same time span, net earnings of the company stood at $685 million. At the end of the same period, adjusted EBITDA of the company was $2,106 million, and the quarterly dividend remained unchanged at 9 cents per share. The company also stated that it will propose a return of capital distribution of ~42 cents per share. This reflects the ongoing healthy operational performance and improvement in the strength of its balance sheet.

In 4QFY20, total gold production stood at ~1.2 million ounces, reflecting a decline of 16.2% on a year over year basis. Average realized price of gold went up a whopping 26.2% on pcp during the quarter and came in at $1,871 per ounce. Cost of sales and All-in sustaining costs (AISC) increased 1.8% and ~1% year over year, respectively.  Copper production in 4QFY20 came in at 119 million pounds, up 1.7% on a year over year basis. Average realized copper price stood at $3.39 per pound, depicting an increase of 22.8% from the prior corresponding period.

Key Quarterly Numbers (Source: Company Reports)

Key Updates: 

1. On 9 April 2021, GOLD informed the market that Barrick Niugini Limited (“BNL”) and the Papua New Guinea (“PNG”) government consented on a strategic alliance deal for the Porgera gold mine’s future possession and operation. The gold mine is set to return to operations in late FY21. Per the new joint venture deal, 51% of ownership of Porgera will be held by PNG stakeholders and the remaining 49% by BNL. Particularly, BNL will continue to be the operator of the mine.
2. On 5 April 2021, the company issued the statement forwarded by Papua New Guinea (“PNG”) prime minister, James Marape, declaring a forthcoming deal to resume the Porgera mine. 

Top 10 Shareholders: The top 10 shareholders together form around 25.61% of the total shareholdings, while the top 4 constitutes the maximum holding. Van Eck Associates Corporation and Fidelity Management & Research Company LLC are holding a maximum stake in the company at 4.74% and 3.66%, respectively, as also highlighted in the chart below: 

Data Source: Refinitiv, Thomson Reuters, Analysis by Kalkine Group 

Key Metrics, Liquidity & Balance Sheet Details: The company exited the year with cash and cash equivalents of $5,188 million, depicting an increase of ~57% year over year. Long-term debt at the end of the quarter came in at $5,135 million, down ~0.5% year over year. Net cash provided by operating activities in FY20 stood at $5,417 million, skyrocketing ~91.2% from the prior corresponding period.

In FY20, the company reported an improvement in gross margin to 41.1%, up from 28.9% in FY19. In the same time span, net margin of the company stood at 28.7%, higher than the industry median of 5.7%. EBITDA margin of the company in FY20 stood at 55.3%, higher than the industry median of 40%, indicating higher profitability. During the period, ROE of the company stood at 10.4% as compared to the industry median of 3.8%. Current ratio of the company stood at 3.67x in FY20, higher than the industry median of 2.69x. Debt to equity multiple of the company was 0.23x in FY20, lower than FY19 figure of 0.26x.

Profitability and Leverage Profile (Source: Refinitiv, Thomson Reuters), Analysis by Kalkine Group  

Risk Analysis: GOLD’s revenue, profitability and future growth rate are significantly reliant on prevailing gold prices. Hence, any substantial decline in commodity prices might adversely impact the company’s financial position. Also, the company is exposed to risks relating to foreign operations that are required to be addressed from time to time. The company also faces stiff competition from peers, which adds to the woes. The company is exposed to significant business, economic and competitive uncertainties and is also susceptible to risks associated with projects in the early stages of evaluation, diminishing quantities or grades of reserves, increased costs, and delays, suspensions and technical challenges associated with the construction of capital projects.

Outlook: For FY21, the company expects attributable gold production to be in the ambit of 4.4-4.7 million ounces. AISC and cost of sales are projected to be between $970-$1,020 per ounce and $1,020-$1,070 per ounce, respectively. GOLD anticipates copper production for FY21 to be in the ambit of 410-460 million pounds at AISC of $2.00-$2.20 per pound. It expects capex to be in the range of $1,800 million and $2,100 million. The company is focused on improving its exploration strategy in its Latin American region and is likely to uncover new business opportunities. The company is focused on the exploration and organic growth and may witness upside across Tier One portfolio. It is also on track to certify all operational mines and is capturing the benefits of higher gold prices through agile management and operational execution.

Valuation Methodology: EV/Sales Multiple Based Relative Valuation (Illustrative) 

Data Source: Refinitiv, Thomson Reuters, Analysis by Kalkine Group 

*% Premium/(Discount) is based on our assessment of the company’s NTM trading multiple after considering its key growth drivers, economic moat, stock's historical trading multiples versus peer average/median, and investment risks. 

Stock Recommendation: Over the last three months, the stock went down by ~4.57%. The stock made a 52-week low and high of $18.64 and $31.22, respectively. On the technical analysis front, the stock has a support level of ~$19.43 and a resistance level of ~$24.95. We have valued the stock using an EV/Sales multiple based illustrative relative valuation method and arrived at a target price of an upside of low double-digit (in percentage terms). We believe that the company can trade at a slight premium as compared to its peer’s average, considering its robust results for 4QFY20, resilient business, modest industry outlook and growth prospects. We have taken peers like Royal Gold Inc (NASDAQ: RGLD), Newmont Corporation (NYSE: NEM), to name few.  Considering the company’s track record of enhancing shareholder’s value, decent 4QFY20 performance, geographical diversification, encouraging outlook and valuation, we give a “Buy” recommendation on the stock at the closing price of $22.74, up by ~1.52% on 21 April 2021.  

GOLD Daily Technical Chart (Source: Refinitiv, Thomson Reuters)

Note: Investment decision should be made depending on the investors’ appetite on upside potential, risks, holding duration, and any previous holdings. Investors can consider exiting from the stock if the Target Price mentioned as per the Valuation has been achieved and subject to the factors discussed above.