Barrick Gold Corporation‘s (GOLD – Free Report) shares are currently trading at a forward price/earnings of 9.87x, a discount of about 23.5% to the industry average of 12.9x. It also has a value score of A.
Shares of GOLD are trading roughly 21% below its 52-week high of $21.35 reached on October 21, 2024. Shares of GOLD have lost some luster after recent gains from the gold price rally, partly due to the weaker than expected earnings figures. performance in the third quarter due to lower gold production. GOLD’s third-quarter gold production of 943,000 ounces was roughly 9% lower than last year’s level. Shares of the gold mining giant have also fallen about 8% in the past month.
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Technical indicators show that GOLD has been trading below its 50-day simple moving average (SMA) since October 30, 2024. The stock is also currently trading below its 200-day SMA. Nevertheless, the 50-day SMA continues to trade higher than the 200-day SMA since the gold crossover on April 29, 2024, indicating a bullish trend.
GOLD trades below the SMA of 50 days
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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.
Important projects to get production going for Barrick
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 official 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 GOLD margins and cash flow
Rising gold prices should translate into strong profit margins and free cash flow generation. Gold is one of the best performing assets this year. Gold prices are up about 27% 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 increased tensions in the Middle East. After the pullback caused by a rally in the US dollar following Trump’s victory in the US presidential elections, gold prices strengthened again when the Federal Reserve cut interest rates by a quarter of a point. While a stronger US dollar weighs on the yellow metal, prices are likely to gain support on the prospect of another rate cut in December.
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 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 2.3% 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 10.9%.
Higher production costs are weighing on Barrick’s inventory
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%. GOLD expects 2024 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 mining investment and potentially steeper energy costs could lead to higher costs this year.
GOLD’s Earnings Estimates Fall
Earnings expectations for Barrick have been revised downwards over the past thirty 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 performance has been mediocre this year, despite the gold price rally. Shares of GOLD have lost 6.4% so far this year, underperforming the Zacks Mining – Gold industry’s 22% gain and the S&P 500’s 27.7% gain. Its peers, Newmont Corporation (NEM – Free Report) has lost 0.9%, while Kinross Gold Corporation (KGC – Free report) and Agnico Eagle Mines Limited (AEM – Free Report) have achieved gains of 63.6% and 55.4% respectively over the same period.
GOLD’s YTD Price Performance
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How Should Investors Play With GOLD Stocks?
Barrick’s growth initiatives, actions to boost production, solid financial health and safe dividend yield paint a promising picture. Rising gold prices should also increase GOLD’s profitability and boost cash flow. Despite GOLD’s attractive valuation, its 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.