Barrick Gold Corporation‘s (GOLD – Free Report) shares have lost 21.1% over the past three months, underperforming the Zacks Mining – Gold industry’s 10.9% decline.
Shares of GOLD are trading about 27% below its 52-week high of $21.35 reached on October 21, 2024. The downward spiral in GOLD shares partly reflects the weaker-than-expected earnings performance in the third quarter due to lower gold production and higher despite higher realized gold prices. GOLD’s gold production in the third quarter of 2024 fell by approximately 9% from the previous year’s level. It expects attributable gold production to be at the lower end of the previously announced range of 3.9-4.3 million ounces. Operational problems at certain mines are expected to impact production in 2024. The gold mining giant’s shares have also fallen around 9% in the past month as the company continues to be embroiled in a dispute with the Malian government over its distribution of the economic benefits of its Loulo-Gounkoto gold mine complex.
Technical indicators show that GOLD has been trading below its 50-day simple moving average (SMA) since October 30, 2024. The stock has also been trading below its 200-day SMA since November 25, 2024. After a death crossover on December On August 24, 2024, the 50-day SMA is trading lower than the 200-day SMA, indicating a bearish trend.
GOLD trades below the SMA of 50 days
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Given the decline in GOLD shares, investors might be tempted to buy up the shares. But is this the right time to buy GOLD? Let’s find out.
Key projects supporting production growth for GOLD
Barrick is well positioned to benefit from progress on key growth projects that should contribute significantly to production. Major gold and copper growth projects including Goldrush, Pueblo Viejo plant expansion and mine life extension, Donlin Gold, Fourmile, Lumwana Super Pit and Reko Diq are currently underway. These projects are running on schedule and on budget, providing the foundation for the next generation of profitable manufacturing.
The recently commissioned Goldrush mine is ramping up to a target production of 400,000 ounces per year by 2028. Adjacent to Goldrush is the 100% Barrick-owned Fourmile, which produces grades double those of Goldrush and which is expected to become a new Tier One mine. The Reko Diq copper-gold project in Pakistan is designed to produce 400,000 tonnes of copper and 500,000 ounces of gold annually, in its second phase of development.
In October 2024, Barrick announced the start of development of a Super Pit at its Lumwana copper mine in Zambia. The Super Pit expansion involves doubling the throughput of the current process circuit and significantly increasing mining volumes. Once completed, the $2 billion project has the potential to transform Lumwana into a long-term, high-yielding top 25 copper producer and a Tier One copper mine.
Higher gold prices will boost Barrick’s margins and cash flow
Gold was among the best performing assets in 2024. The gold price rose by around 27% last year, driven by strong demand from central banks, monetary easing in the United States, global uncertainties and a surge in safe haven demand due to increased tensions. in the Middle East and Russia. Prices reached a record high of $2,748.23 per ounce in October. After a temporary pullback in early November due to a rally in the US dollar following Trump’s victory in the US presidential elections, gold prices recovered thanks to interest rate cuts by the Federal Reserve. While a stronger US dollar and the prospect of fewer rate cuts in 2025 have been weighing on the yellow metal lately, prices are likely to be supported by expectations of increased central bank purchasing and geopolitical tensions. Higher gold prices should translate into strong profit margins and free cash flow generation for GOLD.
GOLD’s robust liquidity and attractive dividend bode well
Barrick has a solid liquidity position and generates healthy cash flows, making it well positioned to take advantage of attractive development, exploration and acquisition opportunities, increase shareholder value and reduce debt. At the end of the third quarter of 2024, Barrick’s cash and cash equivalents were approximately $4.2 billion. It also generated operating cash flow of $1.18 billion and free cash flow of $444 million.
GOLD offers a healthy dividend yield of 2.5% at the current share price. The payout ratio stands at 37% (a ratio of less than 60% is a good indicator that the dividend will be sustainable), with a five-year annualized dividend growth rate of around 7%.
Higher costs weigh on the gold supply
GOLD is challenged by higher costs, which could erode margins. Cash costs per ounce and all-in-sustaining cost (AISC) – the key cost metric of mining companies – have increased significantly in 2023 due to lower production and sales volumes, along with unplanned costs and changes in sales mix at various mine sites. In Q3 2024, cash costs per ounce of gold rose about 21% year over year, while AISC rose about 20%. For full-year 2024, GOLD expects total cash costs per ounce of $940-$1,020 and AISC of $1,320-$1,420 per ounce, indicating a year-over-year increase in the mid-range of the respective ranges. Increased capital expenditure on mine sites, higher labor costs and potentially steeper energy costs could lead to higher costs.
Valuation looks attractive for gold stocks
GOLD’s attractive valuation should entice value-seeking investors. The stock currently trades at a trailing twelve-month earnings multiple of 8.79x, lower than the five-year median. This represents a discount of around 28% when added to the industry average of 12.14x.
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Barrick’s earnings estimates drop
Earnings expectations for Barrick have been revised downwards over the past sixty days. The Zacks Consensus Estimate for 2024 and 2025 has been revised downward over the same period.
Find the latest EPS estimates and surprises on the Zacks Earnings Calendar.
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GOLD stocks are underperforming the industry and the S&P 500
Barrick’s price development was moderate despite the rally in the gold price. GOLD shares have lost 12.3% over the past year, underperforming the sector’s 14.5% gain and the S&P 500’s 26% gain. Among its peers, Newmont Corporation (NEM – Free Report) has lost 6.1%, while Kinross Gold Corporation (KGC – Free report) and Agnico Eagle Mines Limited (AEM – Free Report) have achieved gains of 70.3% and 51.8% respectively in the same period.
GOLD’s price performance over one year
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Final Thoughts: Hold on to GOLD stocks
Barrick’s growth initiatives, actions to boost production, solid financial health and safe dividend yield paint a promising picture. The strength of the gold price should also boost profitability and boost cash flow. Despite GOLD’s attractive valuation, its high production costs warrant caution. Therefore, it is not advisable to buy the dip in this Zacks Rank #3 (Hold) stock. Holding on to GOLD shares will be wise for investors who already own them.
You can see it You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.