Barrick Gold Corporation (TSX: ABX) is a gold mining company principally engaged in the production and sale of gold and copper, as well as related activities, such as exploration and mine development. The Company holds interest in 14 gold mines, including six Tier One Gold Assets.

Investment Rationale

• Strong underlying commodity: Gold prices are firm and strong amid rising inflationary pressure across the globe and hovering uncertainties over potential rate hike from Central banks. Gold is hovering well above its crucial short-term and long-term support levels of 50-day and 200-day SMAs, implies a bullish trend in the gold. Strong gold prices will benefit gold miners and favorable for positive stock price movement, as majority of stock price movement in the mining companies synched with the movement in the underlying commodity.

Gold price chart (as on January 12, 2022). Source: REFINTIV, Analysis by Kalkine Group.

• Industry leading EBITDA, Operating and Net margin: Industry leading margin profile of the company reflects strong competitive advantage of the company against its rivals. ABX’s EBITDA margin for the quarter ended September 30, 2021, stood at 52.8% whereas industry median EBITDA margin stood at 41%, Operating margin of 36.4% vs. industry median of 27.0% and Net margin of 21.7% vs industry median of 13.8%, respectively. Also, solid operating performance sets company up for strong finish to 2021.
• Higher positive spread between ROCE and WACC: ABX’s ROCE and WACC spread stood at 11.7%, which is significantly higher and implies that the company’s business model is throwing a lot of free cash flow. Also, a higher spread between ROCE and WACC implies that the company is selecting projects which are carrying potential to generate a higher internal rate of return (IRR).
• Robust risk protection metrices: As of September 30, 2021, the company’s debt/equity ratio stood at 0.22x slightly higher than the industry median of 0.21x. However, the company is not exposed to any balance sheet, as it has robust risk protection measure, with Net Debt is just 0.04x of its EBIDTA and TTM interest coverage ratio stood at 13.65x, implies no balance sheet risk.
• An Income play: AT the last closing, ABX shares are offering a decent dividend yield of 1.91%, which higher compared to the Canada 10-Year treasury bond yield of ~1.5%. Also, the company has track record of consistent dividend payment regardless of the economic cycle over the past two decade.

Dividend distribution history. Source: REFINITIV, Analysis by Kalkine Group

• Gaining technical strength: ABX shares are gaining technical strength, as its shares traded above its crucial short-term support level of 50-day and 21-day SMA, a bullish trend. Further, the leading momentum indicator Moving Average Convergence Divergence (MACD) is rising, with the spread between 12-day EMA and 26-day EMA is positive, another bullish indicator. Also, MACD oscillator hovering above 9-day SMA signal line. Also, the 14-day RSI is hovering in neutral zone with bullish bias at 54.9.

Technical price chart (as on January 12, 2022). Source: REFINITIV, Analysis by Kalkine Group

Risk Associated:

ABX is exposed to variety of risks ranging from adverse movement in the underlying commodity prices (Gold and Copper), a strength in dollar index against the majors could also have a weigh on the gold prices, increase in interest rate and resurgence in the COVID-19 cases could hamper production, operation and supply chain of the company.

Financial Highlights: Q3FY21

Source: Company Profile

• Revenue Highlights: In Q3FY21, the company reported revenue stood at USD 2,826 million, approximately 20% decline on a YoY basis, on the back of 14% YoY decline in gold sold because of 5% reduction in gold production and 8% reduction in the average gold realization prices.
• Higher Copper realization prices: In Q3FY21, the company’s average copper realization prices soared up 21% to USD 3.98/lb from USD 3.28/lb in Q3FY20. This has partially offset the losses in average gold realization prices and supported the group’s consolidate revenue during the quarter under consideration.
• Free Cash Flow Up on QoQ, down on YoY basis: ABX’s reported free cash flow in Q3FY21 nudged by ~2,632% to USD 481 million on a sequential quarter. However, down by 63% on a YoY basis.
• EPS performance: The company’s reported net earnings per share stood at USD 0.20, a 60% decline from USD 0.50 reported in Q3FY21, mainly because of lower topline and margin contraction on a comparable quarter basis.

Top-10 Shareholders

Top-10 shareholders are holding approximately 25.89% stake in the company, with Van Eck Associates Corporation and Capital World Investors are the major shareholders, holding ~4.71% and 3.22% stake in the company. Institutional ownership in the company stood at 62.90%.

Source: REFINITIV, Analysis by Kalkine Group

Valuation Methodology (Illustrative): EV to Sales-based valuation

Source: REFINITIV, Analysis by Kalkine Group

Note: Premium (discount) is based on our assessment of the company’s growth drivers, economic moat, competitive advantage, stock’s current and historical multiple against peer group average/median and investment risks.

Stock Recommendation

ABX built upon strong fundamentals with strong balance sheet, higher operating efficiency, and robust risk protection metrices. Moreover, operating cash flow of USD 1,050 million and the free cash flow of USD 481 million for Q3FY21 would further support an already strong balance sheet and the funding of Barrick’s capital allocation priorities.

Gold prices are firm and strong and safe-haven yellow metal is hovering well above its crucial short-term and long-term support levels of 50-day and 200-day SMAs, implies a bullish trend in the gold. Strong gold prices will benefit gold miners and favorable for positive stock price movement, as majority of stock price movement in the mining companies synched with the movement in the underlying commodity.

Moreover, ABX shares are gaining technical momentum, with stock traded above its crucial support level of 21-day and 50-day SMAs and leading momentum indicator MACD is rising and hovering above 9-day SMA signal line, bullish indicator.

Hence, based on the above rationale, we recommend a “Buy” rating on the “ABX” stock at the closing price of CAD 24.02 (on January 12, 2022).

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

Technical Analysis Summary

1-Year price chart (as on January 12, 2022). Source: REFINITIV, Analysis by Kalkine Group

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

*Recommendation is valid on January 13, 2022, price as well.

Disclaimer

The advice given by Kalkine Canada Advisory Services Inc. and provided on this website is general information only and it does not take into account your investment objectives, financial situation and the particular needs of any particular person. You should therefore consider whether the advice is appropriate to your investment objectives, financial situation and needs before acting upon it. You should seek advice from a financial adviser, stockbroker or other professional (including taxation and legal advice) as necessary before acting on any advice. Not all investments are appropriate for all people. The website www.kalkine.ca is published by Kalkine Canada Advisory Services Inc. The link to our Terms & Conditions has been provided please go through them. On the date of publishing this report (mentioned on the website), employees and/or associates of Kalkine do not hold positions in any of the stocks covered on the website. These stocks can change any time and readers of the reports should not consider these stocks as advice or recommendations later.