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:

• Key growth projects advanced: The company had completed or progressed major capital projects in the second quarter of the year while its globally broadened exploration programmes delivered substantial reserve gains and stepped up the search for new world-class discoveries. 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 in Nevada, the updated Goldrush feasibility study has confirmed that this is a world-class asset which meets Barrick’s investment criteria.
• On track to achieve full year production guidance: Production for the second quarter of 2021 was impacted by a mechanical mill failure at Carlin but Barrick remains on course to achieve its guidance for the year.
• Significantly higher dividend payment: During H1FY21, the company reported its dividend distribution of USD 317 million, higher than USD 246 million in pcp. Increase in dividend reflects the confidence of the management in its cash flow generation ability.

Q2FY21 Financial Highlights:

• ABX announced its quarterly result and 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 vs USD 1,727/oz in pcp), which was offset by slightly lower gold production (1,041 koz, vs 1,149 koz in pcp).
• The company reported improved operational efficiency and recorded a lower cost of sales of USD 1,704 million from USD 1,900 million in pcp. Moreover, General and administrative expenses stood significantly lower at USD 47 million, from USD 71 million in pcp.
• Adjusted EBITDA stood at USD 1,719 million, marginally higher than USD 1,697 million in the previous corresponding period.
• Net income jumped to USD 694 million from USD 622 million in the previous corresponding period.

Source: Company Report

Risks: Volatility in the gold prices would lead to a lower realization price and subsequently dampen the income and cash flow of the company.

Valuation Methodology (Illustrative): Price to Cash Flow

Stock Recommendation

For FY21, the company expects gold production in between 4.40 - 4.70 million ounces, while copper production is expected 410 – 460 million of pounds. The company anticipates its total capital expenditure in between USD 1,800 - 2,100 million. The company operates from its Nevada Gold mine, which has delivered excellent results in the past and has significant gold reserves deposits and also identified several drilling potentials for coming days. We have valued the stock using the price to P/CF- 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 Corporation, KirkLand Gold and Agnico Eagle Mine etc. Considering the aforesaid facts, we recommend a ‘Buy’ rating on the stock at the closing price of CAD 25.20 on September 8, 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 September 8, 2021). Source: REFINITIV, Analysis by Kalkine Group

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

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