Barrick Gold Corporation

GOLD Details

Barrick Sells Shares in Shandong Gold: Barrick Gold Corporation (NYSE: GOLD) is a gold mining company. The company has many advanced exploration and development projects situated in 13 countries in North and South America, Africa, Papua New Guinea, and Saudi Arabia. Recently, the company stated that it has sold 79,268,800 shares of Shandong Gold Mining Co., Ltd., for a consideration of HK$20.50 per share. The gross proceeds from the transaction amounted to ~US$210 million.

Settlement of Land Claims: In another update, the company stated that it has resolved most of the North Mara legacy land claims and paid the first tranche of the $300-million settlement, agreed with the Tanzanian government to resolve the disputes it inherited from Acacia Mining.

1QFY20 Key Financial Highlights: During the quarter, the company reported net earnings of $400 million as compared to $111 million reported in the prior corresponding period. Adjusted earnings per share (excluding all one-time items) for the quarter stood at 16 cents per share, up 45.5% year over year. Total sales during the quarter came in at $2,721 million, which increased ~30% from the prior corresponding period. Total gold production stood at 1.25 million ounces, which declined 9% on pcp. Price realized for gold was $1,589 per ounce, up 22% year over year. The company exited the period with a cash balance of $3,327 million and total debt of $5.2 billion. Net cash provided by operating activities came in at $889 million in 1QFY20.

1QFY20 Key Highlights (Source: Company Reports)

What to Expect: For FY20, the company expects gold production to be between 4.6-5 million ounces, as compared to the earlier projection of 4.8-5.2 million ounces. The company expects AISC to be in the range of $920-$970 per ounce, in-line with the previous guidance. Cost of sales is predicted to be between $980-$1,030 per ounce. Barrick Gold continues to expect copper production in the ambit of 440-500 million pounds at an AISC of $2.20-$2.50/lb and at cost of sales of $2.10-$2.40/lb. Further, the company expects capital expenditure to be between $1,600 million and $1,900 million for FY20. 

Risks Analysis: The company’s top-line is linked to gold prices. Any event which affects the gold prices negatively would impact the company’s performance adversely. Further, worries over coronavirus’ impact on the global economy and political uncertainties remain a potential headwind.

Valuation Methodology: EV/Sales Multiple Based Relative Valuation (Illustrative)

EV/Sales Multiple Based Relative Valuation (Source: Refinitiv, Thomson Reuters)

Note: All forecasted figures and peers have been taken from Thomson Reuters, NTM-Next Twelve Months

Stock Recommendation: The stock of GOLD closed at $26.27 with a market capitalization of ~$46.7 billion. The stock made a 52-week low and high of $12.65 and $28.5, respectively, and is currently trading at the upper band of the range. The stock of the company went up by 32.34% in the past three months. The company remains focused on its key exploration programs. The company’s growth projects across Turquoise Ridge, Goldrush and Cortez Deep South in Nevada, remain a key catalyst. Further, the gold prices also surged to more than $1,740 an ounce, mainly due to U.S-China tensions, the civil strife in the United States, and a lower U.S. dollar. We opine that higher gold prices are likely to boost the earnings in the near-term during market volatility and economic worries. We have valued the stock using an EV/Sales multiple based illustrative relative valuation method and arrived at a target price with an upside of low double-digit (in % terms). Hence, we recommend a “Buy” rating on the stock at the closing price of $26.27, down 2.01% on 2 July 2020.

GOLD Daily Technical Chart (Source: Refinitiv, Thomson Reuters)

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