Barrick Gold Corporation (TSX: ABX) is one of the leading gold producers across the globe and has operating mines across North America, South America, Australia, and Africa.

Key Investment Rationale:

• FY21 production stood in line with guidance: For FY21, ABX reported its gold production of 4.44 million ounces, stood within the company’s guidance of 4.4 to 4.7 million ounces. On the other hand, preliminary copper production stood at 415 million pounds in FY21, was also within the guidance range of 410 to 460 million pounds. The performance was supported by higher production from Carlin and Cortez mines in Q4FY21 due to the repair of the Goldstrike roaster completed in Q3FY21, which allowed for increased processing of material mined from both sites. Additionally, in Q4FY21, the company also registered higher copper production aided by an increased throughput level from the Lumwana mine.
  

• Higher Sales volumes on a sequential basis: The company reported total gold sales of 1.23 million ounces and 113 million pounds of copper in Q4FY21, stood higher than 1.07 million and 101 million pounds of copper in Q3FY21. Notably, the average market price for gold in Q4FY21 was at USD 1,795/ ounce (v/s 1,771/ounce in Q3FY21), while the average market price for copper in Q4FY21 was USD 4.40 /pound (v/s USD 3.98/pound in Q3FY21).

• Transformation of Tanzania Mines to Tier One Assets: Recently, the company reported that its North Mara and Bulyanhulu mines were converted to Tier One assets, and both the mines achieved ISO 45001 safety and ISO 14001 environmental accreditations. Notably, both North Mara and Bulyanhulu used to be expired gold mines during the time of acquisition (by ABX) in 2019. Hence, the entire process of transformation is encouraging. The group registered a combined production of more than 500,000 ounces of gold from these two mines in 2021 and is expected to add substantial resources to the company’s portfolio in the coming days.
• Bullish outlook of Gold: International Gold price has remained in an uptrend since October 2021 due to rising bond yield. Moreover, being a defensive asset class, gold is gaining traction due to the overvalued equity market. Recently, we have seen a growing interest in the Gold ETF segment, which implies that investors are pouring their investments in the same. Continuation of the above trend would support the company’s sales volume in the coming days.

• Industry beating margins: The company commands a higher margin than the industry median, which indicates improved operational efficiency. Notably, EBITDA margin and operating margin stood higher at 52.8% and 36.4%, respectively, in Q3FY21, higher than the industry median of 40.7% and 27%, respectively. Moreover, the net margin stood at 21.7% in Q3FY21, higher than the industry median of 12.9%.
  

• Increase in dividend payment: At the end of 9MFY21, the company distributed a higher dividend of USD 475 million, as compared to USD 387 million in pcp. This is impressive as most of the companies are lowering their dividend distribution in order to retain liquidity.
  

Risks associated with the investment:

The company’s operation is directly correlated with the international gold and copper prices, and a correction in the commodity prices would likely impact the company’s revenue and cash flows.

Q3FY21 Financial Highlights:

Q3FY21 Income Statement Highlights (Source: Company Report)

• Decline in top-line: ABX announces its third quarter results, wherein the company posted its revenue of USD 2,826 million, as compared to USD 3,540 million in pcp. The decline was primarily due to lower gold sales of 1,071 koz, as compared to 1,249 koz in pcp combined with lower realized prices of gold (USD 1,771/oz v/s USD 1,926/oz in pcp).
  

• Slide in the input costs: The company reported a slide in the input costs, and posted lower cost of sales, decline in general & administrative expense and a decrease in exploration, evaluation and project expenses.
  

• Decline in income before income taxes: The company reported a decline in the income before income taxes at USD 935 million, as compared to USD 1,555 million in pcp. This was primarily due to lower revenue coupled with an increase in the finance costs, partially offset by lower input costs, as mentioned earlier. 
  

• Sluggish bottom-line: Net income stood at USD 612 million, as compared to USD 1,271 million in pcp. This was primarily due to a lower income before income taxes and higher income tax expense.
  

Top-10 Shareholders

Top ten shareholders of the company together hold approximately 26.30 % stake, Van Eck Associates Corporation and Capital World Investors are the major shareholders in the company with an outstanding position of 5% and 3.64%, respectively.

Source: REFINITIV, Analysis by Kalkine Group 

Valuation Methodology (Illustrative): EV to Sales

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:

The company operates from its Nevada Gold mine, which has delivered excellent results in the past, and has strong gold reserves to support its upcoming operations. 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). For the said purposes, we have considered peers like Wesdome Gold Mines Ltd, Alamos Gold Inc etc. Considering the aforesaid facts, we recommend a ‘Buy’ rating on the stock of ABX at the closing price of CAD 24.98 on February 09, 2022.

One-Year Technical Price Chart (as on February 09, 2022). Analysis by Kalkine Group

*Recommendation is valid on February 10, 2022, price as well.

Technical Analysis Summary

Technical Indicators Defined: -

Support: A level where-in the stock prices tend to find support if they are falling, and downtrend may take a pause backed by demand or buying interest. 

Resistance: A level where-in the stock prices tend to find resistance when they are rising, and uptrend may take a pause due to profit booking or selling interest. 

Stop-loss: It is a level to protect further losses in case of unfavourable movement in the stock prices 

Note 1: The reference data in this report has been partly sourced from REFINITIV. 

Note 2: 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.

Disclaimer

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