Company Overview: Barrick Gold Corporation (NYSE: GOLD) is engaged in the business of gold mining and is focused on finding, developing, and owning the best assets to deliver 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. The stock of the company trades on the NYSE under the ticker GOLD, and on the TSX under the ticker ABX.

GOLD Details

Decent Quarterly Positions to Deliver on Annual Performance: 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 2 December 2020, the market capitalization of the company stood at ~$42.60 billion. Third-quarter ended 30 September 2020 was proven another solid quarter of production, driven by Carlin and Pueblo Viejo following scheduled plant maintenance in Q2. Despite the COVID-19 crisis crippling the global economies, the company reported an increase of 80% in its operating cash flows to $1.9 billion on the quarter on quarter basis and a record level of quarterly free cash flows of $1.3 billion, reflecting an increase of 151% on the previous quarter. This was mainly due to higher gold prices and increased royalty costs.

Annual mine production over the period of 2010-2019 witnessed a CAGR of 2.6% from 2,748 tonnes in 2010 to 3,464 tonnes in 2019.

Annual Mine Production Trend (Source: Company Reports)

With the advantage of higher gold prices amid Covid-19, the company strengthened its operational excellence along with improving its leverage position on the balance sheet. Steller operational performance of GOLD in the 3^rd quarter of 2020, reinforcement of 10-year plan and capitalizing on the gold prices to maintain an industry-leading balance sheet position the company to deliver on annual production guidance. A robust portfolio of mining assets, business combinations, unlocking synergies at Nevada Gold Mines, healthy financials augur well for the future growth of the company.

Key Highlights of 3QFY20 Results: During the third quarter, the company reported strong operating performance, reflecting decent asset quality. The company has re-enforced its 10-year plan and is capitalizing on the gold price to maintain an industry-leading balance sheet. On the YTD basis, the company produced 3.6 million ounces of gold with zero class 1, high severity environmental incidents. The agile structure of the organization is helping the company to minimize the impact of COVID-19 crisis. Additionally, the ongoing rationalization of its portfolio is converting closure properties to value opportunities. During the quarter ended 30 September 2020, the company produced 1.15 million ounces of gold at an AISC of $966 per ounce and 103 million pounds of copper at C1 cash costs of $1.45 per pound.

Quarterly Operational Highlights (Source: Company Reports)

During the third quarter, the company reported an increase in revenue to $3,540 million from $3,055 million in the previous quarter. In the same time span, net earnings of the company stood at $882 million and reported a fall of 71% in its debt, net of cash to $417 million, as compared to $1.4 billion in the prior quarter. At the end of the same period, adjusted EBITDA of the company was $2,223 million, and the quarterly dividend was increased for the third time in the past year, rising by 12.5% to 9 cents per share. The Board is of the opinion that the increase in current dividend is sustainable and is reflective of the ongoing healthy performance of its operations and continuous improvement in the strength of its balance sheet.

Key Quarterly Numbers (Source: Company Reports)

Conclusion of Morila Sale: Barrick Gold Corporation and AngloGold Ashanti Limited have recently concluded the sale of their 80% stake in the Morila gold mine to Firefinch Limited for a cash consideration of $28.8 million. The transaction is likely to benefit Malian stakeholders by giving Firefinch the opportunity to extend its life by accessing satellite resources and adapting the infrastructure.

Moody’s Upgrades Senior Unsecured Ratings to Baa1: The company has recently announced that Moody’s Investors Services has upgraded the ratings of senior unsecured debt of Barrick and all subsidiaries to Baa1 from Baa2 and is likely to have a stable outlook. At the end of the 3QFY20, the company reported total liquidity of $7.7 billion and hence will provide significant flexibility to the company through gold price volatility. This upgrade in rating reflects the significant progress of the company in boosting its balance sheet since the merger with Randgold.

Loncor Provides Exploration Update: The company has provided an exploration update with its Joint Venture with Loncor Resources Inc. and reported it has started a scout drilling program on various prospects in the Ngayu greenstone belt. The exploration within the Ngayu joint venture is likely to offer new priority drill targets that have the potential to attain Tier 1 status at Mokepa and Mongaliema.

Details of Top 10 Shareholders: The following table provides an overview of the top 10 shareholders of Barrick Gold Corporation. Fidelity Management & Research Company LLC is the largest shareholder in the company, with a percentage holding of 4.67%.

Top 10 Shareholders (Source: Refinitiv, Thomson Reuters)

Key Margins: During the 3QFY20, the company reported an improvement in gross margin to 45.6%, up from 37.8% in 2QFY20. In the same time span, net margin of the company stood at 35.9%, higher than the industry median of 11.9%. At the end of the third quarter, EBITDA margin of the company stood at 58.1%, higher than the industry median of 43.4%, indicating higher profitability. During the quarter, ROE of the company stood at 3.9% as compared to the industry median of 1.4%. This shows that the company is well managing the capital of its shareholders and can generate profits internally.

Looking into the balance sheet, current ratio of the company stood at 4.49x during 3QFY20, higher than the industry median of 2.41x. This shows that the company is in a decent liquidity position and can pay off its current liabilities using its current assets. During the quarter, Assets/Equity ratio of the company was 2.02x, higher than the industry median of 1.71x and Debt/Equity Ratio of the company was 0.23x, in line with the previous quarter.

Key Margins (Source: Refinitiv, Thomson Reuters)

Key Investment Risks: 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.

Future Expectations and Outlook: The company is focused on improving its exploration strategy in its Latin American region and is likely to uncover new business opportunities. The consistently strong performance of the company since the merger is validating the probability of decent growth. The company seems well placed to achieve its production guidance in the range of 4.6 million to 5.0 million ounces for FY20. The company is focused on the exploration and organic growth and may witness upside across Tier One11 portfolio. It is also on track to achieve the goal of certifying all operational mines and is capturing the benefits of higher gold prices through agile management and operational execution.

Key Valuation Metrics (Source: Refinitiv, Thomson Reuters)

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

EV/Sales Multiple Based Relative Valuation (Source: Refinitiv, Thomson Reuters)

Note: All the forecasted figures are taken from Thomson Reuters, NTM: Next Twelve Months

Stock Recommendation: The company is upgrading and combining the digital and information systems and is focused on delivering operational excellence. It retains a healthy balance sheet and substantial liquidity, which is likely to support the company for investing in the future, regardless of capital market vagaries. As per NYSE, the stock of GOLD is trading slightly above the average of its 52-week trading range. The stock of GOLD gave a negative return of 19.08% in the past three months and a negative return of 11.78% in the last one month. On a technical front, the stock of GOLD has a support level of ~$22.34 and a resistance level of ~$25.88. We have valued the stock using the EV/Sales multiple based illustrative relative valuation and have arrived at a target upside of lower double-digit (in % terms). Considering the decent quarterly performance, modest long term outlook, upgradation in ratings by Moody’s, and key investment risks, we recommend a ‘Buy’ rating on the stock at the closing price of $23.96, up by 0.55% on 2 December 2020.

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

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