Barrick Gold Corporation‘s (GOLD – Free Report) shares look attractive from a valuation perspective. GOLD is currently trading at a forward price/earnings of 12.68x, a discount of approximately 17.7% compared to the industry average of 15.41x. It also has a value score of A.
GOLD is currently trading at a roughly 6% discount to its 52-week high of $21.21 reached on September 26, 2024, as gold prices shot to a record high due to monetary policy easing and increased geopolitical tensions.
Barrick’s cheap valuation should entice value-seeking investors. But is the time right to buy GOLD stock based on its attractive valuation? Let’s dig deeper.
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GOLD stocks are outperforming the industry and the S&P 500
Thanks to the gold price rally, GOLD shares have risen 13.8% over the past three months, outperforming the sector’s 12.8% gain and the S&P 500’s 1.9% gain. His colleagues, Newmont Corporation (NEM – Free report), Kinross Gold Corporation (KGC – Free report) and Agnico Eagle Mines Limited (AEM – Free Report) have achieved gains of 19.5%, 12.5% and 14.5% respectively in the same period.
GOLD’s price performance versus industry, S&P 500 and peers
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Bullish Technicals for GOLD Stocks
Technical indicators for Barrick are showing bullish momentum. GOLD has been trading continuously above the 200-day simple moving average (SMA) since June 18, 2024. The stock also eclipsed its 50-day SMA on August 8, 2024. Notably, the 50-day SMA is still trading higher than the 200-day moving average since the gold crossover on April 29, 2024, indicating a bullish trend.
GOLD is trading above its 50-day SMA
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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. The 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 progressing both on schedule and on budget and are laying the foundation for the next generation of profitable manufacturing. The restart of the Porgera mine would provide further benefits and support the company’s planned production increase until 2024.
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 Zambia, the Lumwana Super Pit project will double the mine’s production over a life of more than 30 years.
GOLD recently stated that the feasibility study for the Lumwana mine expansion is expected to be completed by the end of this year, with construction to begin in 2025. The expansion includes doubling throughput by merging the existing process loop and significantly increasing mining volumes. . It could transform the mine into a long-lived, high-return operation, placing it among the top 25 global copper producers and achieving Tier One copper mine status.
Rising gold prices will boost Barrick’s margins and cash flow
Rising gold prices should translate into strong profit margins and free cash flow generation. Gold prices are hitting record highs this year and the yellow metal is one of the best performing assets. Gold is up about 29% this year, driven by strong demand from central banks, dovish interest rate outlook from the Fed, global uncertainties and a surge in demand for safe havens due to geopolitical tensions. The recent rally in gold prices was driven by the 50 basis point interest rate cut by the US Federal Reserve. Gold reached a record high of $2,685.42 per ounce on September 26, 2024, as the US interest rate cut and growing expectations of another cut in November weighed on the US dollar. Increased tensions in the Middle East due to the conflict between Israel and Hezbollah have also fueled demand for safe havens. Iran’s recent missile attack on Israel has increased the risk of a wider conflict in the Middle East.
GOLD’s strong liquidity and attractive dividend bode well
Barrick has a robust liquidity position and generates healthy cash flows, making it well positioned to take advantage of attractive development, exploration and acquisition opportunities, as well as enhance shareholder value and reduce debt. At the end of the second quarter of 2024, Barrick’s cash and cash equivalents were approximately $4 billion. It also generated operating cash flow of $1.16 billion and free cash flow of $340 million.
GOLD offers a healthy dividend yield of 2% at the current share price. The payout ratio stands at 39% (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 17.3%.
Higher production costs are weighing on Barrick’s inventory
GOLD is hampered by higher costs, which can 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 the second quarter, cash costs per ounce of gold rose about 10% year over year, while AISC rose about 11%. GOLD expects 2024 total cash costs per ounce of $940-$1,020 and AISC of $1,320-$1,420 per ounce, indicating year-over-year increases in the mid-range of the respective ranges. Increased capital expenditure on mine sites and potentially steeper energy costs could lead to higher costs this year.
GOLD’s earnings estimates move higher
Earnings estimates for Barrick have risen over the past 60 days, reflecting analyst optimism. The Zacks Consensus Estimate for 2024 and 2025 have been revised upward over the same period.
The Zacks Consensus Estimate for 2024 earnings is currently pegged at $1.26, suggesting year-over-year growth of 50%. Earnings are also expected to grow 34.4% in 2025.
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How Should Investors Play With GOLD Stocks?
Barrick’s growth initiatives, actions to boost production, solid financial health and bullish technical data paint a promising picture. A healthy growth trajectory, rising earnings expectations and a safe dividend yield are the other positives. Rising gold prices should also increase GOLD’s profitability and boost cash flow. Despite GOLD’s attractive valuation and optimistic growth prospects, high production costs warrant caution. Holding this stock’s Zacks Rank #3 (Hold) will be wise for investors who already own it.
You can see it You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.