Barrick Gold Corporation’s GOLD stock is currently trading at a forward price/earnings of 9.87X, a roughly 23.5% discount to the industry average of 12.9X. It also has a Value Score of A.
GOLD’s shares are trading roughly 21% below its 52-week high of $21.35, reached on Oct. 21, 2024. GOLD’s stock has lost some luster after the recent gains due to the gold price rally, partly reflecting its weaker-than-expected earnings performance in the third quarter on lower gold production. GOLD’s third-quarter gold production of 943,000 ounces was roughly 9% lower than the prior-year level. The gold-mining giant’s shares have also been down around 8% over the past month.
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Technical indicators show that GOLD has been trading below the 50-day simple moving average (SMA) since Oct. 30, 2024. The stock is also currently trading below the 200-day SMA. Nevertheless, the 50-day SMA continues to read higher than the 200-day SMA since the golden crossover on April 29, 2024, indicating a bullish trend.
GOLD Trades Below 50-Day SMA
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Barrick’s cheap valuation should lure investors seeking value. But is the time right to buy GOLD’s shares based on its attractive valuation? Let’s delve deeper.
Key Projects to Drive Production Upside for Barrick
Barrick is well-placed to benefit from the progress in key growth projects that should significantly contribute to its production. Its major gold and copper growth projects, including Goldrush, the Pueblo Viejo plant expansion and mine life extension, Donlin Gold, Fourmile, Lumwana Super Pit and Reko Diq, are currently being executed. These projects are advancing on schedule and within budget, underpinning the next generation of profitable production.
The recently commissioned Goldrush mine is ramping up to a targeted 400,000 ounces of production per annum by 2028. Bordering Goldrush is the 100% Barrick-owned Fourmile, which is yielding grades double those of Goldrush and is anticipated to become another Tier One mine. The Reko Diq copper-gold project in Pakistan is designed to produce 400,000 tons of copper and 500,000 ounces of gold annually in its second development phase.
In October 2024, Barrick announced the official commencement of the development of a Super Pit at its Lumwana copper mine in Zambia. The Super Pit Expansion entails doubling the present process circuit's throughput and substantially boosting mining volumes. Upon completion, the $2 billion project has the potential to transform Lumwana into a long-term, high-yielding, top-25 copper producer and Tier One copper mine.
Higher Gold Prices to Drive GOLD’s Margins and Cash Flow
Rallying gold prices should translate into strong profit margins and free cash flow generation. Gold has been among the best-performing assets this year. Gold prices have rallied roughly 27% this year, driven by strong demand from central banks, a dovish Fed interest rate outlook, global uncertainties and a surge in safe-haven demand thanks to increased tensions in the Middle East. After the pullback due to a rally in the U.S. dollar following Trump's win in the U.S. Presidential election, gold prices regained strength as the Federal Reserve cut interest rates by a quarter point. While a stronger U.S. dollar is weighing on the yellow metal, prices are likely to gain support on prospects of another rate cut in December.
GOLD’s Strong Liquidity & Attractive Dividend Bode Well
Barrick has a robust liquidity position and generates healthy cash flows, which position it well to take advantage of attractive development, exploration and acquisition opportunities, as well as drive shareholder value and reduce debt. At the end of the third quarter of 2024, Barrick’s cash and cash equivalents were around $4.2 billion. It also generated an operating cash flow of $1.18 billion and a free cash flow of $444 million.
GOLD offers a healthy dividend yield of 2.3% at the current stock price. Its payout ratio is 37% (a ratio below 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 Weigh on Barrick Stock
GOLD is challenged by higher costs, which may eat into its margins. Its cash costs per ounce and all-in-sustaining costs (AISC) — the most important cost metric of miners — increased significantly in 2023 due to lower production and sales volumes, along with unplanned costs and changes in the sales mix across different mine sites. In the third quarter of 2024, cash costs per ounce of gold increased around 21% year over year, while AISC rose roughly 20%. GOLD projects total cash costs per ounce of $940-$1,020 and AISC of $1,320-$1,420 per ounce for 2024, which indicates a year-over-year increase at the midpoint of the respective ranges. Increased mine-site sustaining capital spending and potentially steeper energy costs may lead to higher costs this year.
GOLD’s Earnings Estimates Going Down
Earnings estimates for Barrick have been revised downward over the past 30 days. The Zacks Consensus Estimate for 2024 and 2025 have been revised lower over the same time frame.
Find the latest EPS estimates and surprises on Zacks Earnings Calendar.
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GOLD Stock Underperforms Industry and S&P 500
Barrick’s price performance has been lackluster this year despite the rally in gold prices. GOLD’s shares have lost 6.4% year to date, underperforming the Zacks Mining – Gold industry’s 22% increase and the S&P 500’s rise of 27.7%. Its peers, Newmont Corporation NEM has lost 0.9%, while Kinross Gold Corporation KGC and Agnico Eagle Mines Limited AEM have racked up 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 the GOLD Stock?
Barrick’s growth initiatives, actions to boost production, solid financial health and a safe dividend yield paint a promising picture. Rallying gold prices should also boost GOLD’s profitability and drive cash flow generation. Despite GOLD’s attractive valuation, its high production costs warrant caution. Holding onto this Zacks Rank #3 (Hold) stock will be prudent for investors, who already own it.
You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
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