With the reopening of the economy on improved Covid-19 infection numbers and ongoing vaccination efforts worldwide, gold has lost a bit of appeal as a safe-haven asset.
As of writing, gold futures for Aug. 21 were trading around $1,781 per ounce, down 6.57% so far this year and 1.6% below average.
The time for investing in gold is not over, however, as new highs could be lying on the horizon. A possible flareup of the Covid-19 virus due to the spread of the delta variant could lead many countries to reimplement part of the restrictions that were in place until a few weeks ago, making the recovery more uncertain. Thus, acquiring gold to shield the value of a portfolio from the negative effects of increased volatility could be a wise decision.
Furthermore, there is risk of higher inflation, against which gold offers good protection. Due to the crisis, the supply is still constrained a bit everywhere, which, combined with the strong rebound in demand, will cause a rise in prices of goods and services that would not be simply transitory, but persist for quarters.
Economists are projecting gold to trade at $1,990 per ounce before the end of the year, reflecting a 12% increase from current levels.
There are investors who like to increase the exposure of their assets to changes in the price of the yellow metal through positions in gold exploration and production companies, as these stocks usually rise more than the commodity itself when the market is bullish.
Among these mining companies, Barrick Gold Corp. (GOLD, Financial) is expected to deliver superior performance over the second half of the year as its financials should also take advantage of higher volumes. Additionally, certain improvements at operations that the company has planned in North America, Argentina and Tanzania will drive the production of gold up.
For full-year 2021, the Toronto-based company forecasts it will dig up between 4.4 million to 4.7 million ounces of gold from its reserves, paying an all-in sustaining cost ranging between $940 and $1,020 per ounce of gold sold.
Mining activities will be performed on total proven and probable gold reserves of 55.712 million ounces, which are located around the world.
Barrick Gold also produces copper. The company projects it will mine between 410 million and 460 million pounds of the red metal in 2021 at an AISC of around $2.2 per pound.
The balance sheet is solid as its total cash available on hand and short-term investments of $5.7 billion covers more than three times what is needed to guarantee ongoing mining activities and to finance the exploration of mineral resources and develop metallic projects.
Total debt accounts for $5.15 billion. If the company had to repay it completely with the level of Ebitda ($7.05 billion at an average gold price of $1,848 for the 12-month prior to March 30, 2021) that operations can currently generate, it would take less than one year. There are few operators in the industry currently that would be able to perform such a deleverage.
Barrick Gold is also distributing quarterly dividends. A payment of 9 cents per common share was distributed on June 15. It will return $500 million to its shareholders through two special dividends of the same amount in August and November. This should also produce positive effects on the share price.
Shares were trading around $20.79 on Friday morning for a market capitalization of $37.05 billion.
The stock seems to be affordable as it is $5 below the midpoint of the 52-week range of $18.64 to $31.22, the price-book ratio of 1.54 is better than the industry median of 2.53 and the enterprise value-Ebitda ratio of 5.63 is below the industry median of 11.05.
Wall Street has issued one strong buy, four buy and 13 hold recommendation ratings with an average target price of $29.33 per share.
