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:

• Growth Prospects from Dominica and Argentina: The group is working on Plant Expansion and Mine Life Extension Project within Pueblo Viejo mine located in Dominican Republic. This addition is expected to be completed by end of 2022. Moreover, the group also start Environmental and Social Impact Assessment (ESIA) application for additional tailings storage capacity to be filed in Q3FY22. These are expected to increase the exploration & production activity from the specific region. Across the Veladero mine in Argentina, the group reported the completion the construction of Phase 7A project to ~48%. Completion of the construction would result in higher ore process in the coming years, which is a key positive and would support the group’s production.

• Surge in Dividend payment: In Q1FY22, the company reported its dividend distribution of USD 178 million, increased from USD 158 million in Q1FY21. This is impressive as most of the companies are lowering their dividend payment in order to retain liquidity.

Dividend Distribution (Source: Company Presentation)

• Robust Profitability margins: For Q1FY22, the company reported its EBITDA margin and operating margin of 51.3% and 38.4%, respectively, significantly higher than the industry median of 40% and 24.7%, respectively. Net margin was recorded at 24.7% in Q1FY22, as compared to the industry median of 13.1%. These indicates that the company has a better cost management when compared to the industry median.

Risks Associated with the business:

The income of the company is related to international gold prices, and price volatility could fluctuate the operations in terms of the average released rate which could sway the financials in the near term in any direction.

Q1FY22 Financial Highlights:

Q1FY22 Income Statement Highlights (Source: Company Report)

• In Q1FY22, the company’s revenue stood at USD 2,853 million, slide from USD 2,956 million in pcp. The decline was primarily due to 20% y-o-y dip in gold sales of 993 ounces v/s 1,234 ounces in pcp. This was partially offset by a 5% y-o-y increase in the realization price of USD 1,877/ounce.
• The company reported an increase in input costs and posted higher cost of sales along with a surge in Exploration, evaluation and project expenses. Hence, the company’s Income before finance costs and income taxes stood lower at USD 1,007 million v/s USD 1,204 million in pcp.
• Net income slide to USD 706 million in Q1FY22 from USD 830 million in pcp, due to the input costs mentioned above partially offset by lower income tax expenses.

 Valuation Methodology (Illustrative): EV to Sales Based

Analysis By Kalkine Group 

Stock Recommendation:

For FY22 the Management expects its gold production in between the range of 4.2 to 4.6 million ounces, anchored by a stable portfolio of the company’s six Tier One Gold Asset. Copper production is expected in between 420 – 470 million of pounds in FY22. Gold prices are expected to hover around 1,700/oz, while Copper Price at USD 4.00/lb for FY22.

We have valued the stock using the EV to Sales-based relative valuation method and have arrived at a single-digit upside (in percentage terms). For the said purposes, we have considered peers like Newmont Corporation, Agnico Eagle Mines Ltd. Considering the aforesaid facts, we recommend a ‘Hold’ rating on the stock of ABX at the closing price of CAD 28.88 on May 06, 2022. 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.

One-Year Technical Price Chart (as on May 06, 2022). Analysis by Kalkine Group

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

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