Barrick Gold Corporation (TSX: ABX) is a gold mining company engaged in the production and sales of gold and copper. The company has its mines spread across North America, South America, Australia, and Africa. 

Key highlights

• Assay results of 2021 Drill activity: On February 28, 2022, Donlin Gold LLC, which is equally owned by Barrick Gold Corp (TSX: ABX, NYSE: GOLD) and NOVAGOLD RESOURCES INC. (TSX, NYSE American: NG) came out with the assay results from the activity conducted in 2021, stating a comprehensive 79-hole, 24-264 – meter 2021 drill activity produced various gold intercepts of high-grade quality. The company is quite optimistic to conduct the drilling activities at its Acma pit, in anticipation of further high-quality metal to be discovered from the underlying surface.

• Annual production guidance: On February 16, 2022, the company stated it met its production guidance for FY21 for the third consecutive year and it is expanding the gold exploration activities further to outpace the depletion from its existing mines. The company is having six Tier One mines, and its exploration team is currently seeking more probable opportunities in the Asia – Pacific region.

• Dividend distribution & share buyback:For Q4FY21 the company announced a dividend of USD 0.10 and authorized a share buyback program of up to USD 1.0 billion of the company's outstanding common share over 12 months. The company is withholding USD 130 million of cash in its books which gives enough flexibility to deploy it across the upcoming exploration activities.

• Industry beating margins: The company outpaced the profitability threshold in Q4FY21 by reporting an EBITDA margin of 57.9% as compared to the industry margin of 39.2%. Being into a capital-intensive segment, the company worked on its operational aspects and reported higher Operating margins of 46.5% in Q4FY21 as compared to the industry margins of 26.6%. It's worth noting the Net Margins of the company for the reported period at 34.8%, which is almost 100% more than the industry margins of 15.0%.
  

  Source: REFINITIV, Analysis by Kalkine Group 

Risks associated with investment

The company is extensively involved in gold mining and exploration, which requires a significant amount of capital expenditure and compliance with Environmental, Social, and Governance norms. In the scenario of the rising interest rates, the opportunity cost of the company on spending across new mines increases, and any changes in the compliance, could also hamper the business operations in the near term. Last but not the least, the underlying, gold, which is subject to volatility, can sway the revenues of the company in either direction bringing along the hedging cost as a dent to its financials. 

Financial overview of FY 2021

Source: Company Filing 

• The company reported a slight decline in the FY21 total revenue to USD 11.9 billion as compared to the total revenue of USD 12.5 billion in pcp. One of the reasons for the decline in the revenue is a slight dip in its annual gold production to 4.43 million ounces in FY21 vs 4.76 million ounces in FY20.

• The Cost of sales was reported at USD 7.08 billion in FY21 as compared to the USD 7.41 billion in pcp. For the FY21 company, the company witnessed a decrease of USD 111 million in other incomes which was reported at USD 67 million in FY21 as compared to USD 178 million in pcp.

• For FY21 the company reported income before income taxes of USD 4.63 billion as compared to the USD 4.94 billion in pcp.
  

• For FY21 the company reported Net Income of USD 3.28 billion as compared to the USD 3.61 billion in pcp.
  

Valuation Methodology (Illustrative): EV to Sales multiples Based

Analysis by Kalkine Group 

Stock recommendation 

The company delivered a positive return of 23.40% in past one month and 28.49% returns in the past three months. With the record gold production and tailwinds from the rising gold prices and demand on account of the increase in the inflation-protected asset class, the company is showcasing its financials on a solid footing. Further exploration activities and share buybacks boost the confidence of investors in the business, which warrants the company having a special place in the portfolio. On the valuation front, the stock is measured on the NTM EV/ Sales multiple, which hints the stock is still undervalued as compared to its peers, leaving the scope for the stock to match the industry valuations.

Therefore, based on the above rationale and valuation, we recommend a “Hold” rating at the closing market price of CAD 29.90 on March 3, 2022. Additionally, the markets are trading in a highly volatile zone currently due to certain macro-economic issues and geopolitical tensions prevailing. Therefore, it is prudent to follow a cautious approach while investing. We have considered Newmont Corporation, Franco-Nevada Corp, and Agnico Eagle Mines Ltd as the peer group for the comparison.

One-Year Technical Price Chart (as on March 3, 2022). Source: REFINITIV, Analysis by Kalkine Group

Disclaimer

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