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 asset portfolio and operates 15 gold mines across North America, South America, Australia, and Africa.

Key Highlights

• Riding on the wave of higher gold pricesthrough agile management and operational efficiency, the company increased its operating cash flow by 80% in Q3 2020 to USD 1.9 billion and free cash flow by 151% to USD 1.3 billion. This is a record set by the company on a quarterly basis for free cash flow.

Source: Company

• Year-to-Date gold production of 3.6 million ounces is keeping the company on track to achieve its guidance of between 4.6 and 5.0 million ounces for the year.

Source: Company

• The company has announced a dividend for the third quarter of 2020 of USD 0.09 per share, a 12.5% increase on the previous quarter’s dividend, payable on December 15, 2020, to shareholders with a record date of November 30, 2020. The continuous hike in the dividend reflects the financial health of the company.

Source: Company

• The on-going robust performance of the company’s operations and constant upgrading in the strength of its balance sheet resulted, with total liquidity of USD 7.7 billion, including a cash balance of USD 4.7 billion, and a debt net of the cash position of USD 0.4 billion at the end of Q3 2020. There are no material debt repayments due before 2033.

Source: Company 

Financial Overview

Source: Company 

• For the Q3 2020, the company reported the revenues of USD 3.54 billion increased by 29% compared to USD 2.67 billion in the same period of last year primarily due to an increase in the realized gold price.
• EBIT reported by the company in Q3 2020 was USD 1.6 billion compared to USD 3.35 billion as previous quarter included an impairment reversal and other income, cumulatively more than USD 2.7 billion.
• Net earnings attributable to equity holders of the company for Q3 2020 were USD 882 million compared to USD 2.27 billion on Y-o-Y basis. 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 company’s profitability, margins and cash flows. The price of gold is subject to volatility. It is affected by various factors, such as the strength of the US dollar, Interest rates, Inflation rates, demand and supply, all of which are beyond the company’s control. 

Valuation Methodology (Illustrative): Price to Cash Flow

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

Stock recommendation

Due to the ongoing economic environment, the investors are moving towards defensive asset classes to arrest the current volatility in the equity markets. Gold, being one of the safest asset class, has generated a robust return in the recent time and currently trading close to all-time high levels. The company mentioned that it is on track to achieve its full-year guidance. Higher gold realization prices are helping the company to drive the revenues as well as the cash flows. We expect gold prices to remain high in the near term, which is a key positive for the group. Therefore, based on the above rationale and valuation done, we have given a ‘Hold’ rating at the closing price of CAD 37.62 on 6 November 2020 with a high single-digit upside potential. We have considered Agnico Eagle Mines Ltd, Newmont Corporation, Gold Fields Ltd etc. as the peer group for the comparison.

ABX daily technical chart. Source: Refinitiv (Thomson Reuters)

Tourmaline Oil Corp

Tourmaline Oil Corp (TSX: TOU) is a Canada-based crude oil and natural gas exploration and production company focused on long-term growth through an aggressive exploration, development, production, and acquisition program in the Western Canadian Sedimentary Basin.  

Key highlights

• Acquisitions started paying rewards:Recently, the company had gone for two strategic corporate acquisitions, Modern Resources Inc. (“Modern”) and Jupiter Resources Inc. (“Jupiter”). In Q3 2020 these acquisitions had provided an additional 76,000 boepd of current production and also registered significant incremental growth to cash flow and free cash flow.
• Enhanced production guidance: The company is anticipating 2021 average production of 390,000 - 410,000 boepd, an increase of 25% from prior 2021 guidance of 320,000 boepd. Since the company already achieved its FY20 production guidance of 322,500 – 327,500 boepd during October 2020, now they are expecting the production to exceed 400,000 boepd on the back of successful completion of the Modern and Jupiter transactions.
• Financial Guidance: the company expects to churn cash flow of CAD 2 billion and free cash flow of CAD 856 million on capital spending of CAD 1.1 billion in FY2021.
• Increased Dividend distribution:The company has increased the quarterly dividend by 17% to CAD 0.14/share, effective December 2020, while on September 30, 2020, they distributed a quarterly cash dividend of CCAD 0.12 per common share.
• Topaz Update: The Topaz came with its IPO on October 26, 2020, and its common shares now trade on the Toronto Stock Exchange. The company sold 1 million Topaz common shares in connection with the IPO at a price of CAD 13.00/share and encashed CAD 13.0 million from this. At present, the Tourmaline group owns 58.1 million Topaz shares which had a market value of CAD 809.4 million as of November 3, 2020.

Financial overview of Q3 2020 (Fig. in CAD)

Source: Company

• Total sales from production in Q3 2020 increased 60% to CAD 545.1 million against CAD 340.6 million in the year-ago period. The increase was attributed to higher AECO and Station 2 benchmark natural gas prices and increased sales volumes.
• The company booked an unrealized loss on financial instruments of CAD 59 million in Q3 2020, which dragged down the total revenue to CAD 473 million as against CAD 462 million in the same period on Y-o-Y basis.
• On the back of increased transportation cost, the total expenses in the reported quarter increased 8% to CAD 455 million as against CAD 422 million in the year-ago period.
• The net income clocked in at CAD 4.8 million against CAD 15.7 million in the same period a year ago. 

Risks associated with investment

As the company is in exploration business of oil and gas, hence its revenues are correlated to the oil prices. Any volatility in oil prices is likely to affect the group’s performance. Other factors which could impact their financial performance are like low demand for oil and gas, and financial risk on behalf of their hedged positions.

Valuation Methodology (Illustrative): EV to EBITDA

All forecasted figures and peers have been taken from Thomson Reuters

Stock recommendation

The company is focusing on the optimization of production by making many strategic investments in the form of acquisitions, which already started generating cash flows as well as free cash flow. Recently the group raised the guidance regarding production for FY21 and expects to garner cash flow of CAD 2 billion and free cash flow of CAD 856 million. Therefore, based on the above rationale and valuation done, we have given a ‘Hold’ rating at the closing price of CAD 19.35 on 6 November 2020. 

We have considered Seven Generations Energy Ltd, Peyto Exploration & Development Corp, Crescent Point Energy Corp etc. as the peer group for the comparison.

TOU daily technical chart. 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.