In the frequently volatile world of mining stocks, opportunities often arise during periods of market fluctuation. Barrick Gold Corporation (GOLD), one of the most prominent names in the gold mining industry, has recently experienced a decline in its stock price. For astute investors, this decline represents a potentially lucrative buying opportunity.
Despite the recent underperformance, Barrick Gold remains a compelling investment, supported by a forward dividend yield exceeding 2%. Additionally, the stock is rated a “Strong Buy” by analysts, who project an upside of around 33%, on average, to the mean price target. This optimism is grounded in Barrick’s robust operational performance, strategic initiatives, and favorable market conditions for gold.
The macroeconomic environment continues to support a positive outlook for gold prices. With global economic uncertainties and inflationary pressures persisting, gold remains a sought-after asset for investors seeking stability and value preservation. Moreover, Citi analysts recently said that gold prices might reach $3,000 within the next 12 months, driven by robust physical demand, central bank buying, and macroeconomic factors. Barrick Gold, with its significant production capabilities, is poised to benefit from any upward movement in gold prices.
In this article, we will explore in detail why Barrick Gold is an attractive investment at its current levels.
About Barrick Gold Stock
With a market cap of over $28.8 billion, Barrick Gold Corporation (GOLD) is a leading company in the gold mining industry that has a geographically diverse portfolio of mines spanning nearly all continents. In the Americas, the company operates in the United States (via their joint venture Nevada Gold Mines), the Dominican Republic, Argentina, and Canada. Africa is another crucial region for GOLD, with mines in the Democratic Republic of Congo, Mali, Côte d'Ivoire, and Tanzania. Additionally, Barrick Gold has operations in Saudi Arabia and Papua New Guinea.
Shares of Barrick Gold have dipped 11.1% from their mid-April highs, and are off nearly 7% on a year-to-date basis.
Recent News for GOLD Stock
On May 1, Barrick Gold Corporation announced that its subsidiary, Barrick Gold International Holdings Ltd., has entered into an exploration earn-in agreement with Geophysx Jamaica Ltd. regarding certain properties located in Jamaica. The initial agreement grants Barrick access to around 4,000 square kilometers of consolidated land positions across the country, with a favorable geological setting similar to that in the Dominican Republic, where Barrick operates the Pueblo Viejo mine.
The company will have the right to collaborate with Geophysx to earn up to an 80% joint-venture interest in specified properties upon meeting certain spending obligations and study-deliverable milestones. GOLD will serve as the operator, partnering with Geophysx and leveraging Geophysx’s existing personnel, knowledge, facilities, and equipment.
Barrick Gold Beats on Q1 Earnings, But Production Faces Headwinds
On May 1, Barrick Gold reported its financial results for the first quarter of fiscal 2024, which topped Wall Street’s expectations on both the top and bottom lines. In Q1, the company reported a 4.2% year-over-year revenue increase to $2.75 billion, primarily driven by a rise in its average realized gold price to $2,075 per ounce from $1,902 per ounce a year earlier, and beat analysts’ expectations by $10 million.
GOLD's first-quarter total gold production decreased by 12,000 ounces compared to a year ago, amounting to 940,000 ounces, attributed partly to scheduled maintenance at the Nevada gold mines, while copper output remained stable at 40,000 metric tons. However, on a sequential basis, gold production declined by 10.8% in Q1, while copper production dropped by 21.6% compared to the previous quarter, primarily attributed to lower ore grades at its largest copper mine, Lumwana in Zambia, and reduced output from Zaldivar in Chile.
Costs also rose due to lower economies of scale, with the company reporting all-in sustaining costs for its gold business at $1,474 per ounce in the first quarter, marking an 8% increase compared to the previous year.
Barrick Gold reported an increase in adjusted net earnings to $333 million, equivalent to $0.19 per share, up from $247 million, or $0.14 per share, in the same quarter of the previous year. Its bottom line exceeded Wall Street’s expectations by $0.04.
The miner invests significant amounts in capex, with a trailing 12-month capex-to-sales ratio of 0.272, indicating that around a quarter of its revenue is reinvested in capex. This strategy is poised to enhance production volumes and bolster revenue, especially given the current favorable environment marked by high gold prices.
Furthermore, Barrick Gold’s attributable EBITDA rose 7% year-over-year to $907 million in Q1, with the attributable EBITDA margin improving by 5% to 41%. The company also generated $760 million in net cash from operating activities during the quarter.
Barrick’s production is expected to increase in the upcoming quarters, driven by the ramp-up of the Pueblo Viejo plant expansion starting in Q2 and the restart of the Porgera mine. Barrick affirmed its full-year production targets of 3.9 million to 4.3 million ounces of gold and 180,000 to 210,000 tons of copper. The stronger production is expected to contribute to cost reduction, with the company forecasting gold cost of sales ranging from $1,320 to $1,420 per ounce and copper cost of sales from $2.65 to $2.95 per pound for the full year.
Analysts tracking Barrick Gold expect the company’s earnings to reach $1.06 per share in fiscal 2024, representing a 26.19% year-over-year increase, alongside revenue expected to rise by 12.98% year-over-year to $12.88 billion.
GOLD Stock Valuation and Dividend Yield
When assessing Barrick Gold’s valuation, the stock is currently trading at 14.61 times the consensus earnings estimate for 2024, which is lower than both the sector median of 15.52x and the stock’s own five-year average of 21.98x.
On June 17, GOLD paid its shareholders a quarterly dividend of $0.10 per share. It offers an annualized dividend of $0.40 per share, resulting in a dividend yield of 2.44%, which exceeds the sector median of 2.00%.
Barrick maintains a payout ratio of 44.94%, indicating a balanced approach between reinvesting profits for growth and distributing dividends to shareholders. It also has a 5-year dividend CAGR of 18.66%, significantly exceeding the sector median of 6.48%.
Options Market Sentiment on Barrick Gold Stock
Looking at the July 19, 2024, option chain, we see a bid/ask for the $17.00 CALL option of $0.55/$0.57, and a bid/ask for the $17.00 PUT option of $0.60/$0.62. Remember that this is the options strike nearest to the current stock price.
We can determine the expected price movement by summing the midpoint prices of these options to find the total cost of purchasing a long straddle at current levels. Then, we divide that premium by the current stock price to calculate the expected percentage move:
0.56 (17.00 call) + 0.61 (17.00 put) = 1.17/17.02 = 6.87%
Based on current prices, the options market suggests that GOLD stock might potentially rise or fall by approximately 7% by July options expiration. That would place the stock in a trading range of about $15.82 to $18.21 by the expiration date.
What Do Analysts Expect For GOLD Stock?
Barrick Gold stock has a consensus “Strong Buy” rating. Out of the 17 analysts offering recommendations for the stock, 11 suggest a “Strong Buy,” two advise “Moderate Buy,” and the remaining four suggest a “Hold.”
The average analyst price target of $21.82 indicates a potential upside of about 28% from current price levels.
