One Large-Cap Mining stock to Hold- ABX

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 Highlights:

• FY21 production stood in line with guidance: For FY21, ABX reported its gold production of 4.44 million ounces, stood within the guidance of 4.4 to 4.7 million ounces. Copper production stood at 415 million pounds in FY21, versus the guidance of 410 to 460 million pounds. The performance was supported by higher production from Carlin and Cortez mines in Q4FY21 due to the repair of the Goldstrike roaster executed in Q3FY21. This has allowed for increased processing of material mined from both sites. Additionally, in Q4FY21, the company also registered higher copper production aided by an increased throughput level from the Lumwana mine.

• Sale of shares of Skeena Resources Ltd.: On March 24, 2022, the company reported its sale of 8,831,250 common shares of Skeena Resources Ltd. at CAD 15 per share for a price consideration of CAD 132.4 million.

• Surge in Dividend payment: In FY21, the company reported its dividend distribution of USD 634 million, increased from USD 547 million in FY20. This is impressive as most of the companies are lowering their dividend payment in order to retain liquidity.

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.

   FY21 Income Statement Highlights (Source: Company Report)

• In FY21, the company’s revenue stood at USD 11,985 million, slide from USD 12,595 million in FY20. The decline was primarily due to a 8% y-o-y dip in gold sales of 4,468 ounces in FY21.
• The company reported improved cost structure, and posted lower cost of sales, decline in general & administrative expenses coupled with a marginal slide in exploration, evaluation and project expenses. This partially supported the profitability as Income before finance items and income taxes stood at USD 4,987 million in FY21, as compared to USD 5,293 million in FY20, due to lower income.
• Net income slide to USD 3,288 million in FY21 from USD 3,614 million in FY20, due to the input costs mentioned above coupled with a slightly higher net finance cost.

Valuation Methodology (Illustrative): EV to Sales Based

Analysis By Kaline Group

Stock Recommendation:

The company is looking for new opportunities in Asia-Pacific region and has acquired exploration permits in Japan and prepared a specialist team for this region. Apart from this, the company would explore new prospects across the Nubian and Arabian Shields in North Africa and the Middle East. These are expected to result in improved prospect for the company.

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, Franco-Nevada Corp etc. Considering the aforesaid facts, we recommend a ‘Hold’ rating on the stock of ABX at the closing price of CAD 31.01 on March 30, 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 March 30, 2022). Analysis by Kalkine Group

Disclaimer

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