Barrick Gold

Barrick Gold (TSX: ABX) is one of the world's largest gold producers, which has mines across North America, South America, Australia, and Africa.

Key Highlights:

• Successful commissioning of Phase 6 at Veladero: The new Phase 6 heap leach facility at Veladero has been commissioned on time while the third shaft at Turquoise Ridge in Nevada has been sunk to its final depth. Also, the updated Goldrush feasibility study in Nevada has confirmed that this is a world-class asset which meets Barrick’s investment criteria, which is a part of a CAD 1.3 billion expansion project that is expected to allow Barrick to convert approximately 9 million ounces of measured and indicated resources to proven and probable reserves, extending this Tier One  mine’s life to 2040 and beyond.
• Expanding Footprint across new geography: The company secured four exploration licenses in Egypt with a total area of 2,902 km. The area is located at the Eastern Desert region and is part of the Proterozoic Arabian Nubian Shield, which is believed to highly prospective mineral resource area that remained underexplored till date. Hence, the company would focus on the exploration opportunities coming from the above region, which may further help the company with improved prospects in the future.
• Increased profitability and margin: The company reported a surge in its adjusted EBITDA to USD 3,519 million in H1FY21, reflecting a growth of 11% over the previous year. Meanwhile, net profit during the period stood at USD 949 million, climbed 25% on y-o-y basis. The group reported a strong adjusted EBITDA margin of 60% for H1FY21, reflecting a 500-bps improvement from the previous year. Notably, adjusted net earnings stood at USD 1,020 million in H1FY21, jumped 46% on y-o-y basis.
• Higher dividend distribution: The group has increased its dividend payment during the first half of FY21 to USD 317 million, as compared to USD 246 million in the previous corresponding period (pcp).
  

Q2FY21 Financial Highlights:

• ABX announces its quarterly result, wherein the company posted revenue of USD 2,893 million, down from USD 3,055 million in the previous corresponding period (pcp). The quarter was marked by a higher Realized gold price (USD 1,820/oz to USD 1,725/oz in pcp), partially offset by lower gold production (1,041 koz, vs 1,149 koz in pcp).
• Cost of sales slumped to USD 1,704 million from USD 1,900 million in pcp. Moreover, General and administrative expenses and impairment stood lower than the previous corresponding period.
• Adjusted EBITDA stood at USD 1,719 million, improved from USD 1,697 million in the previous corresponding period.
• Net income stood at USD 694 million, from USD 622 million in the previous corresponding period, supported by lower costs metrics, while an increase in net finance costs remained a drag.

Source: Company Report

Risks: The group’s performance is correlated to the prices of gold. Hence, volatility in the gold prices would affect the realization price and subsequently dampen the income and cash flow of the company.

Valuation Methodology (Illustrative): P/CF based valuation

Stock Recommendation

For FY21, the company expects its gold production within the range of 4.4 to 4.7 million ounces and expects stable production from all of its six Tier One Gold Assets located across the US, the Dominican Republic, Mali and the Democratic Republic of the Congo. The Nevada Gold Mines is expected to deliver the highest production in the fourth quarter, as completion of the repair works is expected within the third quarter of the current fiscal. The company expects its cash costs of USD 680 – USD 730/ounce, while all-in sustaining cost is expected in between USD 970 – USD 1,020/ounce. We have valued the stock using the price to cash flow based relative valuation method and have arrived at a double-digit upside (in percentage terms). For the said purposes, we have considered peers like Newmont Corp, Agnico Eagle Mines etc. Considering the aforesaid facts, we recommend a ‘Buy’ rating on the stock at the closing price of CAD 24.85 on August 10, 2021.

*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

One-Year Technical Price Chart (as on August 10, 2021). Source: REFINITIV, Analysis by Kalkine Group

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

Disclaimer

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