Gold outlook
The price of gold is up over the last 12 months, gaining about 17-19% during the observed period to close at $1,563.70 per ounce on the London bullion market and at $1,567.40 per ounce on the Comex gold futures market on Wednesday, Feb. 12.
Gold will likely keep on benefitting from macroeconomic and geopolitical uncertainties across key economies, as it is used as a safe-haven asset to park wealth while waiting for more stable times.
Thus, the outlook for gold is positive for 2020 as well, with the price per ounce forecasted to grow by over 5% from the current levels to hit $1,650 this year, creating an opportunity that investors can’t miss out on.
Barrick Gold Corporation
Eleven out of a total of twenty-one sell-side analysts on Wall Street recommend purchasing shares of North American gold producer Barrick Gold Corporation (GOLD, Financial). On the tailwind of rising gold prices, the stock increased 43% in the past year through Feb. 12, outperforming the VanEck Vectors Gold Miners (GDX) exchange-traded fund by 15%.
Barrick Gold has six tier-one gold mines in its portfolio of activities and is producing the precious metal by reserves and resources that can hardly be replicated by any other operator in the mining industry.
Barrick’s attributable gold mineral reserves now account for 71 million ounces grading 1.68 grams of metal per ton of mineral. The total amount, as of Dec. 31, 2019, after a year of depletion from mining, represents a significant improvement from an accumulation (up 14.5% from 2018) and grade standpoint.
The company also has the possibility to retrieve an additional 99 million ounces of gold at an average grade of 1.55 grams of metal per ton of mineral from its total attributable measured and indicated mineral resources, as well as another 39 million ounces from the inferred category of mineral resources.
The potential for future growth is huge. In a higher price environment, let’s say with gold steadily trading above $1,500 an ounce, the company will have almost 4 decades of production ahead.
The assets base is well diversified from a geographical standpoint as activities are located in North America, the Caribbean, Peru, Argentina, Chile, West and Central Africa, Saudi Arabia and Papua New Guinea.
In 2019, Barrick’s gold output reached the company’s guidance range high with 5.46 million ounces (at one of the industry’s lowest all-in sustain cost of $894 per ounce), marking an impressive 20.7% rise from 4.53 million ounces in 2018.
The growth reflects a busy year, which included the merger with Randgold Resources, the creation of the Nevada Gold Mines joint venture with the U.S. gold producer Newmont Corporation (NEM, Financial) and the disposal of its 50% stake in Kalgoorlie Consolidated Gold Mines in Western Australia.
Proceeds from the sale of non-core activities, higher prices and output and lower copper costs allowed Barrick the annual free cash flow to $1.13 billion and strengthen the balance sheet, decreasing net debt by 47% to $2.2 billion. Now the balance sheet is more solid than ever.
For full-year 2020, Barrick Gold guides for consolidated production of 4.8 million to 5.2 million ounces of gold to mine at an all-in sustaining cost of $920 to $970 per ounce and 440 million to 500 million pounds of copper at an all-in sustaining cost of $2.20 to $2.50 per pound.
The share price ($18.41 at close on Wednesday) is slightly above the 200-, 100- and 50-day simple moving average lines and about 16% over the middle point of the 52-week range of $11.65 to $20.07.
The stock has a market capitalization of $32.62 billion, a price-book ratio of about 1.1 versus the industry median of 1.5 and an enterprise value-adjusted Ebitda ratio of approximately 9.1 versus the industry’s EV-to-Ebitda median of 8.85.
The 14-day relative strength indicator of 54 suggests the stock is neither overbought nor oversold.
Furthermore, the stock grants a forward dividend yield of 1.52% as of Feb. 12.
Disclosure: I have no positions in any security mentioned.
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