Barrick Gold Corporation

Barrick Gold Corporation (NYSE: GOLD) is a leading gold and copper producer and operates through its mines located across thirteen countries including North and South America, Africa, Papua New Guinea and Saudi Arabia.

Key Highlights:

• Growth in cash flows: The group reported solid growth in its cash from operations, supported by elevated net profit and improved working capital management. Notably, net cash provided by operating activities stood at USD 1,302 million in Q1FY21, higher than USD 889 million in Q1FY20. Meanwhile, the company’s free cash flow stood significantly higher at USD 763 million, as compared to USD 438 million in Q1FY20.

• Stable Production Guidance: Despite the ongoing economic jolt, the management is confident to report stable production of 4.40 - 4.70 million ounces of gold and 410 – 460 million pounds of copper, which is closer to the production level of the previous year. All-in sustaining costs is expected at USD 970 - 1,020/ounce of gold and USD 2.00 - 2.20/pound of copper.
  

• Declining net debt: The group reported a consistent reduction in its net debt over the years, supported by stable growth in cash and cash equivalents, which is a key positive. At the end of Q1FY21, the group hold a net cash positive balance, which reflects higher cash and cash equivalents than the total debt.                                               

Source: Company Presentation

 Q1FY21 Income Statement Highlights:

• GOLD announces its quarterly result, wherein the company posted its revenue of USD 2,956 million, as compared to USD 2,721 million in the previous corresponding period (pcp). The increase was driven by the elevated realization price of both gold and copper.
• The quarter was marked by a lower cost of sales, a reduction in general and administrative expenses and lower exploration, evaluation and project expenses. Adjusted EBITDA stood significantly higher at USD 1,800 million, as compared to USD 1,466 million in pcp.
• The group reported its net income of USD 830 million, higher than USD 663 million in the previous corresponding period (pcp). The increase was primarily due to a lower cost structure as mentioned above, combined with a dip in net finance costs.

 Q1FY21 Income Statement Highlights (Source: Company Report)

Risks: Shutdown of operations due to the restrictions imposed on account of the COVID 19 pandemic would hamper the exploration and drilling activities and might result in a drop in the overall performance. Moreover, volatility in gold prices would affect the financial performance.

Valuation Methodology (Illustrative): Price to Cash Flow

Stock Recommendation:

In Q1FY21, adjusted EBITDA margin was higher at 61% v/s 54% recorded in Q1FY20. This is a showcase of higher profitability and improved operational efficiency. Moreover, despite the sluggish economic scenario, the company reported a higher dividend of USD 158 million, as compared to USD 122 million in pcp. The company has guided for a stable production We have valued the stock using the P/CF based relative valuation method and have arrived at a double-digit upside (in percentage terms) upside. For the said purposes, we have considered peers like Newmont Corporation, Wesdome Gold Mines Ltd etc. Considering the aforesaid facts, we recommend a ‘Buy’ rating on the stock of GOLD at the closing price of USD 20.53 on June 29, 2021.

One-Year Technical Price Chart (as on June 29, 2021). Analysis by Kalkine Group

Kinross Gold Corporation

Kinross Gold Corporation (NYSE: KGC) is a Canada based gold mining company whose projects are located in the United States, Brazil, Russia, Mauritania, Chile and Ghana. 

Key Highlights

• Boosting production outlook: The management is bullish on the gold outlook and announced a growing three-year production profile, which is expected to increase by approximately half a million ounces, or 20%, to 2.9 million Au eq. Oz. by 2023.

Source: Company

• Robust Free Cash Flow Yield: The company is continuously generating the free cash flows, which is a key positive. Its mines perform well as the management effectively controlled the operational challenges caused by the COVID-19 pandemic. Furthermore, the expected enhanced production along with controlled cost would also derive strong free cash flow performance.

Free Cash Flow Comparison, Source: Company

• Ample Liquidity and prudent capital management: At the end of March 2021, the company reported handsome liquidity of USD 2.6 billion, which includes a cash and cash equivalents of USD 1.05 billion, available credit of USD 1.56 billion. Moreover, the company is planning to reduce its total debt level by USD 500 million, which would further improve the company’s financial flexibility.

Financial overview of Q1 2021 (In millions of USD)

Source: Company

• In Q1 2021, the company posted revenue of USD 986.5 million, higher than USD 879.8 million in Q1FY20. The increase was driven by a higher realized price of gold (USD 1,787/ ounce v/s USD 1,581/ounce in pcp).
• Gross profit surged to USD 359.6 million against USD 265.4 million in pcp, thanks to the elevated revenues, partially offset by a higher cost of sales.
• Operating earnings stood at USD 242.3 million against USD 192.6 million in pcp, although it witnessed higher operating expenses in Q1 2021.
• The company reported Net income at USD 149.2 million against USD 123.3 million in pcp.

Risks associated with investment

As the operations of the company depends on the gold prices, a volatility in gold prices is likely to affect the company’s performance. Moreover, unable to add new mineral exploration would further lower the company’s reserves.

Valuation Methodology (Illustrative): Price to Cash Flow

Stock recommendation

We expect the gold price to remain elevated and believe that despite a bit of pullback, gold, as an asset class, would continue to remain in the limelight as uncertainty over the global economic growth is still prevailing. We believe that average realized gold prices per ounce would continue to expand, which would lead to margin expansions. For FY21, the group estimates its gold equivalent production at 2.4 million ounces, while the production is expected to increase by approximately half a million ounces, or 20%, to 2.9 million Au eq. Oz. in 2023, which is key positive. Furthermore, the expected enhanced production along with controlled cost will also derive strong free cash flow performance. Therefore, based on the above rationale and valuation, we recommend a "Buy" rating on the stock at the closing price of USD 6.28 on June 29, 2021. We have considered B2Gold Corp, Barrick Gold Corp, Alamos Gold Inc etc. as the comparison's peer group.

One-Year Technical Price Chart (as on June 29, 2021). Analysis by Kalkine Group

B2Gold Corp.

B2Gold Corp. (AMEX: BTG) is a gold producer which has operating gold mines in Mali, Namibia and the Philippines and numerous exploration and development projects across several countries, including Mali, Colombia, Burkina Faso, Finland and Uzbekistan. 

Key Updates:

• Decline of Total debt: The group has successfully reduced its total debt to USD 100.145 million in Q1FY21, reflecting a 9.86% decline from Q4FY20. A reduction in total borrowings is a key positive as it improved the overall financial flexibility and led to lower interest expenses, which would subsequently support the bottom-line. Notably, the group has a decent D/E ratio of 0.04, which reflects negligible balance sheet risk.

• FY21 Guidance: For the financial year FY21, the group expects a stable gold production of 970,000 and 1,030,000 ounces, in line with the previous year production. Total consolidated cash operating costs is expected in between USD 500 and USD 540 per ounce, while total consolidated all-in sustaining costs is forecasted between USD 870 to USD 910 per ounce.

• Update on the Menankoto exploration permit: On June 24, 2021, the group started its International Arbitration Proceedings against the Republic of Mali related to exploration permits across the Anaconda area, located 20 kilometers north of the Fekola Mine license area. The above was subsequent to the suspension of a one-year extended mining permit at the Anaconda area.

Q1FY21 Financial Highlights:

• BTG announced its quarterly result, wherein the company posted gold revenue of USD 362.302 million, as compared to USD 380.298 million in the previous corresponding period (pcp). The decline was primarily due to a lower gold sale of 217,473 ounces, as compared to 253,730 ounces in Q1FY20.
• Gross profit stood lower at USD 157.417 million, as compared to USD 192.399 million in Q1FY20, due to lower revenue and lower Depreciation and depletion cost, partially offset by higher production costs.
• The period was marked by lower Share-based payments costs, foreign exchange gains and a slightly lower general & administrative expense. Operating income was recorded at USD 150.176 million, as compared to USD 179.425 million in pcp.
• Net income for the period was recorded at USD 98.832 million, surged from USD 83.008 million in pcp. The increase was supported by lower interest and financing expenses coupled with a slide in the income tax expense.

Q1FY21 Income Statement Highlights (Source: Company Report)

Risks: The company’s income is correlated to the international gold prices, and price volatility in the commodity prices are likely to dampen the company’s income and cash flows.

Valuation Methodology (Illustrative): EV to Sales

Stock Recommendation:

Despite the sluggish macro scenario, the group paid USD 42.072 million of dividends to its shareholders, significantly higher than USD 10.368 million in pcp. The group has guided for stable production and with the elevated gold prices, the financial performance is likely to improve. Moreover, at the last closing price, the stock was offering a dividend yield of ~3.8%, which is decent amid low interest rate environment. We have valued the stock using the EV to Sales based relative valuation method and have arrived at a double-digit upside (in percentage terms) upside. For the said purposes, we have considered peers like Barrick Gold Corp, Agnico Eagle Mines Ltdetc. Considering the aforesaid facts, we recommend a ‘Buy’ rating on the stock at the closing price of USD 4.19 on June 29, 2021.

One-Year Technical Price Chart (as on June 29, 2021). Analysis by Kalkine Group

Yamana Gold Inc.

Yamana Gold Inc. (NYSE: AUY) is a Canada based precious metals producer with significant gold and silver production, development stage properties, exploration properties, and land positions throughout the Americas, including Canada, Brazil, Chile and Argentina. 

Key Highlights:

• Higher dividend distribution backed by elevated cash flows: In Q1FY21, the group distributed a higher dividend of USD 24.8 million, as compared to USD 9.5 million in the previous corresponding period (pcp). The surge was supported by the company’s impressive cash flow from operations, which stood at USD 160.2 million, climbed from USD 129.4 million in pcp. The increase was driven by higher net earnings and improved working capital management. Net free cash flow stood higher at USD 123.5 million in Q1FY21, as compared to USD 91.1 million in pcp.

• A decline in the long-term debt: At the end of Q1FY21, the company reported a slide in its long-term debt at USD 803.7 million, which reflects a 19% decline from Q4FY20. A decline in borrowings is a healthy sign and indicates improved financial flexibility. Notably, the group has a lower D/E ratio of 0.153, which is encouraging considering the capital-intensive nature of the firm.

• Jacobina Optimization Project Moving Well: The Company is advancing the Phase 2 expansion at Jacobina for an increase in throughput to 8,500 tonnes per day. The company expects to provide an update regarding the capex and development schedule in mid-2021 once studies are finalized to facilitate permitting. It has also begun a conceptual study on the Phase 3 expansion, which would increase throughput to 10,000 tpd at modest capital requirements. The company has adopted a comprehensive Jacobina life-of-mine tailings management strategy that reduces surface disposition of tailings, with underground tailings disposal as backfill.

Q1FY21 Financial Highlights:

• AUY announces its quarterly result, wherein the company posted a higher revenue of USD 422 million, as compared to USD 356.5 million in the previous corresponding period (pcp). The YoY growth of 18% was mainly attributable to both higher sales volumes combined with higher realized prices of both gold and silver.
• Mine operating earnings stood at USD 149.5 million, higher than USD 99.3 million in pcp. However, the quarter witnessed a higher cost of sales, while depletion stood at par with the previous corresponding quarter.
• Operating earnings jumped USD 113.6 million, from USD 87.7 million in pcp. The growth was primarily driven by higher mine operating earnings, while higher general and administrative costs, inclusion of other operating expenses and a higher exploration and evaluation costs remained a a drag.
• Net profit stood at USD 52.3 million, as compared to USD 45 million in the previous corresponding period (pcp).

Q1FY21 Income Statement Highlights (Source: Company Report)

Risks: The company’s income is directly correlated to the international commodity prices and the current market demand. Price volatility along with a sluggish demand might ruin the company’s overall performance.

Valuation Methodology (Illustrative): Price to Cash Flow

Stock Recommendation:

The majority of the gold production comes from the Canadian Malartic mine, which reported higher production of 89,550 ounces in Q1FY21, as compared to 64,763 ounces in pcp, despite a lower ore mined due to a reduction in the wastage. We have valued the stock using the P/CF based relative valuation method and have arrived at a double-digit upside (in percentage terms) upside. For the said purposes, we have considered peers like Barrick Gold Corp, Kirkland's Inc etc. Considering the aforesaid facts, we recommend a ‘Buy’ rating on the stock at the closing price of USD 4.19 on June 29, 2021.

One-Year Technical Price Chart (as on June 29, 2021). Analysis by Kalkine Group

Gold Resource Corporation

Gold Resource Corporation (NYSE: GORO) is a mining company which is a producer of metal concentrates that contain gold, silver, copper, lead and zinc, and dore containing gold and silver at the Aguila and Alta Gracia projects in the southern state of Oaxaca, Mexico.

Key highlights

• Robust production: The Company’s Don David Gold Mine produced 6,097 gold ounces and 307,610 silver ounces or a total of 10,750 gold equivalent ounces, of which 5,019 gold ounces and 253,061 silver ounces were payable ounces sold at an average price per ounce of USD 1,787 and USD 26.77, respectively.
• Expanding exploration activity: The company conducted a 262-meter underground development on the southern dedicated exploratory drift project during the quarter. It also completed 14 underground diamond drill holes with a total length of 4,099 meters. Exploration drilling was primarily used to identify new reserves and enhance the mine design by expanding and delineating several high-grade parallel veins.
• Consistent dividend distribution: The Company has an excellent track record of dividend distribution, reflecting resilience and healthy cash flow generation. Recently, it decided to change the frequency with which it would declare and pay dividends from monthly to quarterly. The first USD 0.01 quarterly dividend would be paid on June 30, 2021, to shareholders.

• A healthy balance sheet with no debt burden: The company holds a strong balance sheet with USD 27.2 million in cash as of March 31, 2021, increasing USD 1.8 million since December 31, 2020. On top of all, the company holds no debts in its book, which is commendable. The company's current liquidity seems to be sufficient to carry out its activities satisfactorily.
  

Financial overview of Q1 2021 (In thousands of USD)

Source: Company

• In Q1 2021, the company posted sales of USD 27.2 million, increased by 23.1% compared to USD 22.1 million in the previous corresponding period. The increase was mainly due to higher sales and higher average realization price of metals.
• On the back of lower cost of sales at USD 18.6 million against USD 22.0 million in pcp, the company registered higher gross profit at USD 8.5 million V/s 0.1 million in the previous corresponding period.
• The company also minimized its operating expenses to USD 3.4 million against USD 4.7 million in pcp, as a result it witnessed a net income of USD 2.5 million against a loss of 3.1 million in pcp.

Risks associated with investment

The company is prone to many risks, such as risks related to international operations, government and environmental regulations, delays in mine operations, actual results of mining and current exploration activities, etc. 

Valuation Methodology (Illustrative): EV to Sales

Stock recommendation

In Q1 2021, the business produced 6,097 gold ounces and 307,610 silver ounces, with a net profit of USD 2.5 million. It would also reinvest USD 5.0 million in Don David Gold Mine exploration and infrastructure enhancements. Moreover, its present cash seems to be adequate to carry out the operations successfully. Despite a pullback, gold, as an asset class would continue to remain in the limelight, which would support the group’s financial performance. Based on technical analysis, the stock has support at USD 2.05 level. Therefore, based on the above rationale and valuation, we recommend a “Speculative Buy” rating on the stock at the closing price of USD 2.55 on June 29, 2021. We have considered Sierra Metals Inc, Fortuna Silver Mines Inc, McEwen Mining Inc, etc., as the peer group for the comparison.

*Depending upon the risk tolerance, investors may consider unwinding their positions in a respective stock once the estimated target price is reached or if the price closes below the support level. 

One-Year Technical Price Chart (as on June 29, 2021). Analysis by Kalkine Group

*The reference data in this report has been partly sourced from REFINITIV.