Barrick Gold Corporation

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 Updates:

• Industry beating profit margins: The company commands a higher margin than its peers, which indicates improved operational efficiency. Notably, EBITDA margin and operating margin stood higher at 53.6% and 39.0%, respectively, in Q2FY21, compared to the industry median of 40.1% and 25.8%, respectively. Moreover, the net margin stood at 24.0% in Q2FY21, which was higher than the industry median of 15.9%.
• Operational updates: The group identified significant growth potential from its major mines at Nevada and would conduct drilling test from H2FY21. Within the North Leeville site in Nevada, the company is focusing on identifying high-grade resources and also working on potential reserve addition through a feasibility study across its Goldrush site.
• Upcoming projects: The company is performing construction activities across the following mines, which are expected to add improved prospects in the coming days:

1. The company is constructing its Third Shaft at Turquoise Ridge, which has a hoisting capacity of 5,500 tonnes per day. The above is expected to provide additional ventilation for underground mining operations as well as shorter material haulage distances.
2. Within the Pueblo Viejo mine, the company is focusing on plant expansion, wherein it would increase its throughput to 14 million tonnes per annum, allowing the company to maintain minimum average annual gold production of approximately 800,000 ounces after FY22.

Q2FY21 Financial Highlights:

• ABX announces its quarterly results, wherein the company posted revenue of USD 2,893 million, as compared to USD 3,055 million in pcp. The decline was primarily due to lower gold sales of 1,070 koz, as compared to 1,224 koz in pcp. However, the above was offset by improved realized prices (USD 1,820/oz v/s USD 1,725/oz in pcp).
• Adjusted EBITDA stood at USD 1,719 million, up 1.0% on y-o-y basis. The quarter was marked by lower cost of sales coupled with a decline in general & administrative expenses.
• Net income stood at USD 694 million, higher than USD 622 million in pcp. The bottom-line was supported by higher income from equity investees, partially offset by higher income taxes and higher net finance costs.

Q2FY21 Income Statement Highlights (Source: Company Report)

Risks: The company’s operations are directly correlated with the gold prices. Hence, volatiltiy in the commodity prices would impact the company’s revenue and cash flows.

Valuation Methodology (Illustrative): Price to Cash Flow

Stock Recommendation:

The company has strong liquidity position and is managing its short-term working capital requirements efficiently. The company reported quick ratio and current ratio of 3.46x and 4.47x in Q2FY21, respectively, which was significantly higher than the industry median of 1.53x and 2.72x, respectively. For FY21, the company expects its gold production in between 4.40 - 4.70 million ounces and expects its all-in sustaining costs of gold in between USD 970 to USD 1,020/ oz. Copper production is expected in between 410 to 460 million pounds, while all-in sustaining costs is of copper is expected in between USD 2.00 - 2.20/lb. We have valued the stock using the Price to 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, Agnico Eagle Mines Ltd etc. Considering the aforesaid facts, we recommend a ‘Buy’ rating on the stock at the closing price of CAD 23.25 on October 06, 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 October 06, 2021) Source: REFINITIV, Analysis by Kalkine Group

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

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