Barrick Gold – A step ahead the index

Barrick Gold is a leading gold mining company in the world. The company engages primarily in gold and copper operations as well as exploration and mine development. Barrick Gold’s merger with Randgold Resources has created a sector-leading gold mining company. 

Barrick Gold sells its products in the world market through different distribution channels like the gold spot market and independent smelting companies. The company has a diversified portfolio spanning across the world’s prolific gold districts. Barrick has gold and copper mining operations and projects in 13 countries in North and South America, Africa, Papua New Guinea, and Saudi Arabia. More than 40% of its revenue is derived from the U.S. The company focuses on high-margin, long-life assets and operates six Tier-1 gold assets. Its reportable segments are Carlin (18% of 2019 revenues), Cortez (~13%), Loulo-Gounkoto (~10%), Pueblo Viejo (~14%), Kibali, Turquoise Ridge, Veladero, Porgera, North Mara and other mines (~45%).

Barrick Gold has more than 61% ownership rights on Nevada Gold, which is the single largest gold-producing complex in the world. Its mining operation comprises 8 mines with advanced infrastructure and processing facilities.

Investment Data

• Opportunity Score: 43
• Ticker: TSE:ABX
• Sector: Basic Materials
• Industry: Gold
• Market Cap: 37.12B
• P/E: 16.18
• Dividend Yield: 1.70%
• Payout Ratio (Earnings): 27.50%
• Canadian Dividend Aristocrat: NO
• Chowder Score: Members Only
• Revenue Growth: Members Only
• Dividend Growth: Members Only
• Dividend Growth Fit: 1/10
• Dividend Income Fit: 5/10

Revenue Growth & Market Exposure

Barrick’s gold business is supported by its robust copper business. The company derives ~95% of its revenues from gold sales and the balance of 5% from copper. It is the owner of a diversified asset portfolio located in many of the world’s richest gold areas. Barrick Gold is in a good position to realize the full potential of Nevada mines through synergies and best-in-class operational improvements. It is also favorably placed for new discoveries and organic growth from its existing asset base. The company also has a presence in the under-explored and emerging frontiers.

Barrick Gold continues to expand its global exploration portfolio with new projects and targets.  It acquired the minority shares in Acacia Mining plc, integrating its mines and establishing Twiga Minerals Corporation, a JV with the government. It recently entered into an alliance with Japan Gold, holder of the largest exploration property portfolio in Japan.

The company posted good Q1 results amidst the COVID-19 pandemic. An uninterrupted supply chain and engagements with key suppliers helped in mitigating volatility and uncertainty. Q1 gold production and costs were consistent with full-year guidance. 

Barrick’s copper sales were higher than the previous quarter as local smelters restarted after maintenance shut down. Copper production is on track to meet guidance of 440 to 500 Mlb in 2020 while gold production in the upcoming quarter is expected to be lower due to mine sequencing and planned maintenance. It is, however, scheduled to increase in the second half of the year. The company has guided gold production in the range of 4.8-5.2Moz and AISC of $920-$970/oz for FY 2020. Barrick’s AISC was $923/ oz in Q4 2019.

Dividends

Barrick Gold sports a dividend yield of 1.06% and a very low dividend yield 11%. The company last raised its dividend by a whopping 40% and achieved a dividend growth rate of more than 35% CAGR in the last three years. The quarterly dividend of 7 cents per share was maintained.

Barrick Gold’s share prices have significantly gained after the merger with Randgold Resources. Its cashflow has grown and dividends were raised three times in 2019 while its net debt has almost halved. Barrick Gold reduced its debt net of cash by 17% QoQ to $1.85 billion in the latest quarter. The company has significantly reduced its debt load from near $13 billion at the end of 2014. It has no significant debt maturities until 2033. Its operating and free cash flow both increased to $889 million and $438 million, respectively. The company generated $3.2 billion in operating cash flow over the last twelve months. Barrick has the lowest cash cost position amongst its peers. The company has successfully maintained lower copper costs per pound demonstrating the resilience of its business.

Barrick Gold continues to sell its non-core assets, like its stake in Kalgoorlie Consolidated Gold Mines in the last year. The successful completion of the Massawa sale also created value for stakeholders.

Competition

Barrick Gold competes with the likes of Goldcorp and Agnico Eagle. Goldcorp is a global gold producer with a portfolio of long-life, high-quality assets throughout the Americas. Agnico Eagle is a leading gold miner having mines in Canada, Finland, and Mexico with extensive experience of more than 60 years. An integrated supply chain stretching over multiple continents, operating presence in prolific gold districts, dedicated international partnerships, and industry-leading logistical arrangements are Barrick Gold’s key strengths.

Bottom Line

Barrick’s profit margins have got a boost from higher gold prices. The company has continued to reduce its debt, grow cash from operations, and maintain its dividend. As one of the largest gold miners in the world, Barrick Gold should gain from the rising gold prices. Barrick Gold’s focus on Tier-1 mines should also support its steady and low-cost production in the future. With the precious metal now trading above $1,700 per ounce, it is a good time for the company to pocket higher margins.

One of the consistent holdings from gold ETFs. If you aren’t comfortable holding the stock, check out the Canadian Gold ETFs.