Barrick Gold Corp

Barrick Gold Corp (TSX: ABX) is a mining company principally engaged in the production and sale of gold. The Company holds a geographically diversified portfolio and operates 15 gold mines across North America, South America, Australia, and Africa.

Key Highlights

• Production outlook for 2021: The management has shared its production guidance for 2021, where they expect the total gold production to be in the range of 4.4-4.7 million ozs with AISC of USD 970-1020 per oz. The copper production would be in the range of 410 – 460 million lbs with AISC of USD 2 – 2.20 per lbs.

• Riding on the wave of higher gold prices:Through agile management and operational efficiency, the company increased its operating cash flow by 91% in 2020 to USD 5.4 billion and free cash flow by 197% to USD 3.4 billion, and this is a record set by the company on an annual basis for free cash flow.

Source: Company

• Healthy balance sheet: The on-going robust performance of the company’s operations and continuous improvement has strengthened its balance sheet. The company holds total liquidity of USD 8.2 billion, including a cash balance of USD 5.2 billion and zero net debt. There are no material debt repayments due before 2033, providing sufficient liquidity to execute on strategic goals.

Source: Company

• Dividend distribution: Based on the Company's stable net cash position, robust operating results and the current higher gold price environment, the group paid a fourth-quarter dividend of USD 0.09 per share phare on March 15, 2021. Furthermore, it also intends to propose to shareholders a return of capital distribution of approximately USD 0.42 per share, from a portion of the proceeds from the divestiture of Kalgoorlie Consolidated Gold Mines in November 2019 and from other recent dispositions made by Barrick and its affiliates.

Source: Company

Financial overview of FY 2020

Source: Company

• For 2020, the company reported revenue of USD 12.6 billion, increased by 30% compared to USD 9.7 billion in the previous corresponding period, primarily due to an increase in the realized gold price which increased to USD 1,770 per ounce versus USD 1,393 per ounce in the prior year.
• EBIT reported by the company stood at USD 5.3 billion, this is non-comparable to last year’s EBIT as the company had an impairment reversal and other income, cumulatively more than USD 4.5 billion.
• The company reported net earnings of USD 3.6 billion compared to USD 4.6 billion in the previous corresponding period. The decrease was primarily due to the above-stated reason of impairment reversal and other income. 

Risks associated with investment

The Company’s financial performance is mostly dependent on the price of gold, which directly affects the profitability and cash flow. Any volatility in the gold prices would impact the group’s performance.

Valuation Methodology (Illustrative): Price to Cash Flow

Note: All forecasted figures and peers have been taken from Thomson Reuters 

Stock recommendation

Despite the pandemic, the company managed to report some higher numbers with a strong cash position and zero net debt. Thanks to consistent operating performance across the group, the group met its production targets that demonstrated management’s ability. Higher gold and copper prices drove annual operating cash flow up 91% to USD 5.4 billion and annual free cash flow to a new record high of USD 3.4 billion, which is impressive. Furthermore, for 2021, the company expect the total gold production to be in a range of 4.4-4.7 million ozs with an AISC of USD 970-1020 per oz. The management also highlighted that they intend to reward shareholders a return of capital distribution of approximately USD 0.42 per share, from a portion of the proceeds from the divestiture of Kalgoorlie Consolidated Gold Mines in November 2019 and from other recent dispositions made by Barrick and its affiliates. Therefore, based on the above rationale and valuation, we recommend a “Buy” rating at the closing price of CAD 26.17 on March 19, 2021. We have considered Agnico Eagle Mines Ltd, Wesdome Gold Mines Ltd, and Alamos Gold Inc. etc., as the peer group for the comparison.

1-Year Price Chart (as on March 19, 2021). Source: Refinitiv (Thomson Reuters)

Suncor Energy Inc

Suncor Energy Inc (TSX: SU) is a Canada-based integrated energy company focused on developing Canada's petroleum resource basin, Athabasca oil sands. The Company operates in three business segments: Oil Sands, Exploration and Production (E&P), and Refining and Marketing.

Key Highlights

• Emphasizing on debt management and reduction: The company remains focused on maintaining the financial health and resiliency. Recently it priced an offering of USD 750 million in aggregate principal amount of senior unsecured notes due on March 4, 2051 with a coupon of 3.750% and CAD 500 million of senior unsecured Series 8 Medium Term Notes due on March 4, 2051 with a coupon of 3.950%. On the back of these issues the company intends to reduce the existing debt and announces the repayment of short-term commercial paper.

• Expecting CAD 2 billion of free funds flow by FY2025: On the back of margin improvements, operating & sustaining capital cost reductions and growth opportunities, the management expects to garner healthy free funds flow; 1 billion of free fund flow is expected through projects implementation by FY2023 and another 1 billion through projects deployment by FY2024 – FY2025.

• Guidance on FY2021:The management has shared guidance for production and targets for capital expenditures. The administration expects total production in a range of 740,000 – 780,000 (boe/d), along with a total capital expenditure between CAD 3.8 – 4.5 billion.

Source: Company

• Divesting interest in “Golden Eagle Area Development”: Recently, the company reached an agreement to sell its 26.69% working interest in the Golden Eagle Area Development for USD 325 million and contingent consideration up to USD 50 million. The transaction is expected to close by Q3 2021.

Financial Overview of Q4 2020 (In millions of CAD)

Source: Company

• In Q4 2020, the company reported CAD 6.6 billion revenue, as compared to CAD 9.6 billion in the previous corresponding period. The revenue declined primarily due to lower crude oil and refined product realizations.
• Total operating expenses stood at CAD 7 billion in Q4 2020, against CAD 12.7 billion in the previous corresponding period.
• Operating losses in Q4 2020 were minimized to CAD 0.4 billion against CAD 3.0 billion in pcp. The decrease in depreciation cost, selling and general expenses associated with the company’s cost reduction initiatives played a vital role in bringing down the losses.
• The net loss stood at CAD 0.17 billion, against CAD 2.3 billion in the previous corresponding period.

Risks associated with investment

The Company’s performance is related to the demand and price of the crude oil. Any volatility in the crude oil prices or setback to demand would hamper the company’s performance. 

Valuation Methodology (Illustrative): Price to Cash Flow

Note: All forecasted figures and peers have been taken from Thomson Reuters

Stock recommendation

The Company's reliable operations drove its refinery utilization to 95% in Q4 2020, compared to 87% in Q3 2020. This reflects the sequential improvement in the operation and demand. The group also leveraged its strong domestic sales network and export channels, including integration with the retail network, within its downstream business to achieve higher utilization rates, which continued to outperform the Canadian refining average in Q4 2020. Furthermore, the Company is continuously working to reduce the business's cost structure while increasing productivity and plans to pay down between CAD 1.0 billion and CAD 1.5 billion of debt and repurchase the Company's shares, signifying its ability to generate cash flow and confidence in the underlying value. Therefore, based on the above rationale and valuation, we recommend a "Buy" rating at the closing price of CAD 27.65 on March 19, 2021. We have considered Cenovus Energy Inc, Imperial Oil Ltd, Murphy Oil Corp, etc. as the peer group for the comparison.

1-Year Price Chart (as on March 19, 2021). Source: Refinitiv (Thomson Reuters)

Disclaimer

The advice given by Kalkine Canada Advisory Services Inc. and provided on this website is general information only and it does not take into account your investment objectives, financial situation and the particular needs of any particular person. You should therefore consider whether the advice is appropriate to your investment objectives, financial situation and needs before acting upon it. You should seek advice from a financial adviser, stockbroker or other professional (including taxation and legal advice) as necessary before acting on any advice. Not all investments are appropriate for all people. The website www.kalkine.ca is published by Kalkine Canada Advisory Services Inc. The link to our Terms & Conditions has been provided please go through them. On the date of publishing this report (mentioned on the website), employees and/or associates of Kalkine do not hold positions in any of the stocks covered on the website. These stocks can change any time and readers of the reports should not consider these stocks as advice or recommendations later.