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 Liquidity Position & Sustainable Dividend Remains Key Catalysts: 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. As on 6 January 2021, the market capitalization of the company stood at ~$43.56 billion. The company has many advanced exploration and development projects situated across five continents. In 2019, the company had produced 5.5 million ounces of gold along with copper production of 432 million pounds in the same time span. At the end of 2019, the company had ~71 million ounces (oz) of proven and probable gold reserves, which was up 14.5% on a year over year basis. Copper reserves at the end of 2019 came in at 13 billion pounds. Total revenues in 2019 increased by 34% on pcp and amounted to $9,717 million.

GOLD’s key strategy involves enhancing shareholder’s value through dividends. The company remains focused on boosting the advantages of soaring metal prices by meeting operational and financial objectives. Further, the company is also aiming to enhance gold and copper reserves and production via exploration and selective acquisitions. It is maximizing the value of its current mines and properties by leveraging its capability and regional infrastructure. Moreover, by implementing these key growth strategies, the company expects to boost earnings and cash flow and enhance its shareholders’ leverage to metal prices. It is worth mentioning that in September 2018, the company inked a share-for-share merger deal with Randgold Resources Limited, which was successfully completed on January 1, 2019. The agreement established an industry-leading gold company and bolstered GOLD’s position. Post-merger, GOLD has the capability to produce robust cash flow to carry out higher investments and return cash to shareholders.

Thanks to the robust cash flow, GOLD has lowered debt, net of cash by ~$10 billion over a period of six years to $0.4 billion. Further, the company expects to reach zero net debt by the end of 2020 with no significant maturities until 2033. The company has total liquidity of ~ $7.7 billion (including a $3 billion undrawn revolver) at the end of 3QFY20. Notably, the company has boosted its quarterly dividend three times in the past year. In 3QFY20, the company tripled its quarterly dividend from $0.03 per share to $0.09 per share, since the publication of the Barrick-Randgold merger in September 2018.

Financial Disciplines & Returns (Source: Company Reports)

Gold stocks have been put in spotlight, owing to concerns over the coronavirus and are considered the most attractive safe-haven asset. Demand for gold is primarily driven by low-interest rate environment, geopolitical tensions, and decline in crude oil prices. Additionally, the supply crisis curbing from postponements of businesses by miners has contributed to a gain in gold prices. Further, reinforcement of 10-year plan and capitalizing on the gold price to maintain an industry-leading balance sheet position are expected to aid the company to achieve its production guidance in the range of 4.6 million to 5.0 million ounces for FY20. The trend is likely to continue in days ahead and is expected to support its margins, going forward.

3QFY20 Key Highlights:  During the quarter, the company reported net earnings of $882 million or 50 cents per share as compared to $2,277 million or $1.30 per share reported in the year-ago period. Adjusted earnings per share (excluding one-time items) during the quarter, came in at 41 cents, skyrocketing 173.3% from the prior corresponding period. Total sales surged 32.2% year over year in 3QFY20 and stood at $3,540 million. Total gold production for the period amounted to ~1.16 million, which declined 11.6% on pcp. Average realized price of gold was $1,926 per ounce, an increase of 30.5% on pcp. Cost of sales for the quarter stood at $1,065 per ounce, flat on a year over year basis. Although copper production sank 8.4% year over year, average realized copper price was $3.28 per pound in 3QFY20, up 28.6% on pcp.

3QFY20 Operational Highlights (Source: Company Reports)

Decent Liquidity Position: The company exited the quarter with a cash balance of $4,744 million, an increase of 97.3% year over year. The company’s long-term debt at the of the period came in at $5,140 million, as compared to $5,161 million at the end of 2019. Debt, net of cash was reduced by 71% at the end of 3QFY20 and came in at $417 million, down from $1.4 billion in the previous quarter. Despite the COVID-19 crisis, the company reported an increase of 80% in its operating cash flows to $1.9 billion on a sequential basis and a record level of quarterly free cash flows of $1.3 billion, indicating a rise of 151% on the prior quarter. Net cash provided by operating activities rose 85.2% from the prior corresponding period. The company’s board also boosted its quarterly dividend payout by 12.5% to 9 cents a share.

Debt, Net of Cash Highlight (source: Company Reports)

Key Metrics: In 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 21.1%. EBITDA margin of the company in 3QFY20 stood at 58.1%, higher than the industry median of 40.9%, indicating higher profitability. During the quarter, ROE of the company stood at 3.9% as compared to the industry median of 1.4%. Current ratio of the company stood at 4.49x during 3QFY20, higher than the industry median of 2.40x, depicting a decent liquidity position. In 3QFY20, debt/equity ratio of the company was 0.23x, in line with the previous quarter.

Key Metrics (Source: Refinitiv, Thomson Reuters)

Details of Top 10 Shareholders: The top 10 shareholders have been highlighted in the table, which together form around 27.27% of the total shareholding. 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)

Risk Analysis: On the flip side, the company is exposed to shorter-term disruptions hindering from challenging macro-economic environment due to COVID-19 led outbreak. Further, GOLD’s revenue, profitability and future growth rate are significantly reliant on prevailing metal prices, primarily for gold, copper, silver, lead, and zinc. 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.

Outlook: For FY20, the company retained its annual production outlook and continues to expect attributable gold production between 4.6-5 million ounces. The company expects AISC to be in the ambit of $920-$970 per ounce, and cost of sales to be between $980-$1,030 per ounce for FY20, both in line with the previous outlook. Copper production for the same time period is expected to be in the range of 440-500 million pounds at AISC of $2.20-$2.50 per pound and cost of sales of $2.10-$2.40 per pound. The company anticipates capital expenditures to be in the range of $1,600 million and $1,900 million in FY20.

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: We believe that that higher gold prices and ramping up of new projects are expected to benefit the company, going forward. Furthermore, emphasis on acquisitions and new business investments, bolstered by a solid balance sheet, bodes well. As per NYSE, the stock of GOLD is trading above the average of its 52-week high and low trading range of $31.22 and $12.65, respectively. The stock of GOLD gave a negative return of 9.1% in the past three months and a positive return of 2.3% in the last one month. On a technical front, the stock of GOLD has a support level of ~$22.32 and a resistance level of ~$27.27. 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). For the purpose, we have taken peers like we have taken the peer group - Newmont Corporation (NYSE: NEM), Agnico Eagle Mines Ltd (NYSE: AEM), and Freeport-McMoRan Inc (NYSE: FCX). Considering the decent 3QFY20 performance, reduction in debt, modest outlook, enhancement of shareholder’s value, and ramp-up of new projects, we recommend a ‘Buy’ rating on the stock at the closing price of $24.5, up by 0.91% on 6 January 2021.

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

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