Barrick Gold Corporation

Barrick Gold Corporation (TSX: ABX) is a gold mining company. The company has many advanced exploration and development projects located across 13 countries in North and South America, Africa, Papua New Guinea, and Saudi Arabia.

The Group informed that the second quarter FY20 results would be disclosed on August 10, 2020.

Notice over the dispute over Porgera:  Recently, the company’s subsidiary has given a notice to Papua New Guinea (PNG) that a dispute has arisen under the Bilateral Investment Treaty (BIT) between PNG and Australia. Due to the PNG’s wrongful refusal to grant an extension of the Porgera SML, Barrick claimed damages for it. Further, ABX chooses to refer the dispute to arbitration before the World Bank’s International Centre for Settlement of Investment Disputes (ICSID) if the matter failed to be resolved through consultations and negotiations.

Second Quarter Operational Highlights:  For the second quarter of FY20, ABX reported gold sales of 1.22 million ounces while copper sales stood at 123 million pounds. The average market price for gold and copper stood at USD 1,711 per ounce and USD 2.43 per pound, respectively. Second-quarter gold production stood at 1.15 million ounces of gold and 120 million pounds of copper, lower than Q1FY20, due to lockdown phase across Veladero in Argentina and shutdown at Pueblo Viejo in the Dominican Republic combined with reduced production at Porgera in Papua New Guinea. Meanwhile, the company reported improved copper production and sales, which is impressive.

Q2FY20 Gold Production Details (Source: Company Reports)

Outlook: The Company highlighted that all-in sustaining costs per pound would be 5% to 7% q-o-q higher for copper during Q2FY20, while Q2FY20 gold cost of sales per ounce is expected to be at 4% -6% higher, total cash costs per ounce are expected to be 2-4% higher and gold all-in sustaining costs per ounce are expected to be 7-9% higher, respectively than Q1FY20. For FY20, the Company expects Group gold production within the range of 4.6 million to 5.0 million ounces.

Risks: The Gold prices have remained elevated in the recent past, and the group’s performance is co-related to gold prices. Any volatility in gold prices is likely to affect the group’s performance.

Valuation Methodology: P/CF Based (Illustrative)

Note: All the forecasted figures are taken from Thomson Reuters, NTM: Next Twelve Months

Stock Recommendation: The stock of ABX stood resilient in the recent past and appreciated ~65% so far this year and ~78% in the last one year, respectively. Investors should note that the stock has closed above its 200-days simple moving average of CAD 28.48, indicating a bullish trend. Due to the ongoing economic environment, investors are moving towards 'defensive asset classes' in order to arrest the current volatility in the equity market. Gold, being one of the safest asset class, has generated a robust return in the recent past and currently trading at life-time high. Further, the group has mentioned that it is on track to achieve its full-year guidance. Higher gold prices are likely to drive the group's revenue and cash flow in the near to medium term. We have valued the stock using the P/CF based relative valuation approach and arrived at a target price, which suggests a single-digit upside potential (in % terms). For the said purpose, we have considered the peers like Agnico Eagle Mines Ltd, Kinross Gold Corp etc. Hence, considering the aforesaid facts, we recommend a 'Hold' rating on the stock at the closing market price of CAD 39.98 as on July 27, 2020.

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

Teranga Gold Corporation

Teranga Gold Corp (TSX: TGZ) is a mining company based out of Canada and is engaged in the business of exploring, producing and selling of gold. The Group carry its exploration activities in the West African region-based Senegal. TGZ owns and operates Sabodala Gold mine based in Senegal.

The Company would disclose its second quarter FY20 results on Friday, August 7, 2020.

Key Updates on Sabodala-Massawa Gold Complex projects:

The Company focuses on an initial concept to mine the Massawa Project’s deposits leveraging the existing plant at Teranga’s flagship Sabodala Gold Operations. The study indicates that above project is a top-tier mine and has a large proven and probable reserve base of 4.8 million ounces (75.79 Mt at 1.98 g/t Au at $1,250 gold), with low all-in-sustaining costs of ~USD 749 per ounce, and an estimated net cash flows of over USD 2.2 billion at USD 1,600/oz gold over 16.5-year mine life.

Q1FY20 Financial Highlights:  For the period ended March 31, 2020, TGZ reported a strong result, due to a ~19% y-o-y jump in the average realized prices of USD 1,560 per OZ combined with higher sales volume. Revenue grew ~46% to USD 92.127 million while gross profit came in at USD 39.461 million, reflecting an increase of 41% on y-o-y. Cost of sales was ~48% y-o-y higher at USD 94.653 million. Adjusted EBITDA stood at USD 66.486 million, representing a growth of 36% on y-o-y basis. The Company reported a net profit of USD 16.186 million as compared to a net loss of USD 2.719 million in the previous corresponding period (pcp). The company’s cash cost increased 21% on y-o-y basis at USD 761/oz sold during the quarter. The quarter was marked by higher gold demand, and the sales volume stood at 86,668 oz, reflecting a strong growth of 27% on y-o-y basis.

Q1FY20 Financial Snapshot (Source: Company Reports)

Risks: The company’s performance is linked to the demand and prices of gold. A decline in gold demand would take a toll on income and profitability.

Valuation Methodology: P/CF Based (Illustrative)

Note: All the forecasted figures are taken from Thomson Reuters, NTM: Next Twelve Months

Stock Recommendation: The stock of TGZ made a dream run in the recent past and gained ~103% and ~192% in the last six months and nine months, respectively, due to elevated gold prices. The company reported a dece t 1QFY20 performance and is expected to deliver a solid result in the next quarter as well. Further, preliminary feasibility study demonstrates that Sabodala-Massawa is a top-tier mine with a large proven and probable reserve. The company expects First 5-year average annual production of 384,000 ounces at all-in sustaining costs of USD 671/oz and First 5-year average net cash flow of USD 215 million per year at USD 1,600/oz gold price. Further, lower expected cash costs from the above projects would likely to support the group’s margin. The stock soared ~45% in the last three months, outperforming the index by ~31%. We have valued the stock using the P/CF based relative valuation approach and arrived at a target price, which suggests a single-digit upside potential (in % terms). For the said purpose, we have considered the peers like Roxgold Inc, B2Gold Corp etc. Hence, considering the aforesaid facts, we recommend a ‘Hold' rating on the stock at the closing market price of CAD 15.03 as on July 27, 2020.

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

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