Barrick Gold: A Production and Valuation Update

Barrick Gold is set to recover in 2023 with higher production and an improved income statement

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Jan 26, 2023
Summary
  • Supportive gold and copper prices might be critical tailwinds to Barrick during 2023.
  • The company hosts various underperforming mines that could ramp up within the coming quarters.
  • Barrick Gold's stock provides investors with excellent total return prospects in my assessment.
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It is a busy time for Barrick Gold (

GOLD, Financial) and its investors. The company released its Tanzanian production results on Wednesday, which followed up on its holistic production update released a week earlier.

In its current form, Barrick is a stock that can easily be misunderstood as it faces a slight transitional period after suffering from various structural and systemic concerns during 2022. On top of that, Barrick stock's valuation multiples need to be contextualized, given the current price action within the precious metals space.

A parsimonious overview suggests that Barrick could be set for a bullish period; here's why I think so.

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Gold update

Starting with its most recent news, Barrick Gold published its Tanzanian mining results on Wednesday, revealing combined output of 547,000 ounces during 2022, settling at the higher end of guidance.

Regarding its outlook, structural problem-solving is a top priority for Barrick's Tanzanian mining unit, which could result in a near-term production ramp-up. According to Barrick's management, "The restart of mining at the Gena pit is on track. At Bulyanhulu, the main focus is on ramping up the development of its declines to access the new Deep West mineral reserves and defining further exploration potential in Reef 2."

Notwithstanding Barrick Gold's strong showing in Africa, its broad-based 2022 results were less impressive, missing its gold production estimates by a noticeable margin.

According to its preliminary results, Barrick's Gold's gold production settled at 4.14 million ounces, well short of the 4.2 million ounces it guided towards. Although the company's Carlin and Cortez assets ramped up near the end of the year, they did not deliver sufficient results to cover softer production from Pueblo Viejo.

Furthermore, Porgera, a critical gold asset for Barrick in New Guinea, has been on temporary maintenance care since April 2020 and has yet to restart. The project could come back online soon as Barrick, its joint venture partner Barrick Niugini Limited and the government of Papua New Guinea are in the process of agreeing to a renewed ownership framework. According to Barrick, the asset could be included in its 2023 guidance sometime this year.

Overall, it looks like Barrick's gold mining unit has likely faced the worst of it during 2022. The company expects that all-in-sustaining and cash costs will ease during 2023, which could add significant value to the company's income statement, especially given the possibility of a surge in gold prices.

Copper update

Although it breached estimates, Barrick's copper unit softened during its fourth quarter with a 96 million pounds quarter-over-quarter decrease in production. Much of the segment's depleted results were due to lower throughput and higher waste stripping. Additionally, lower grades from its Lumwana mine did not do Barrick any favors.

Despite an underwhelming 2022, Barrick's copper segment is set to recover this year as structural changes, softening input costs and price support could all play a role.

Two of Barrick's flagship copper assets, namely Zaldivar and Jabal Sayid, are anticipated to achieve greatness in the coming years as their low-cost attributes could come into play once broad-based inflation settles. Moreover, the stock market could soon price Barrick's Reko Diq exploration project in Pakistan, which recently gained feasibility to start producing in 2028.

Supportive metal prices

Gold and copper prices have surged since the turn of the year as critical variables have started to align.

First, a weakening U.S. dollar has provided vital support to gold, and some analysts expect sustained momentum. For example, Swiss Asia Capital forecasts gold to reach $2,500 to $4,000 an ounce.

Copper is following a similar trajectory as gold. Base metals are receiving significant support from China's reopening and an abated recession in the Eurozone, which implies higher industrial demand throughout the year.

Barrick's commodity mix could yield tremendous top-line results if gold and copper estimates are realized. On top of that, settling core inflation will add considerable value to the income statement.

Valuation and dividends

As mentioned in the introduction, I believe Barrick Gold's current valuation multiples need to be interpreted with the possibility of significant commodity price support in mind.

The stock's forward price-earnings ratio of 27.13 might align more favorably with recent commodity price support and the likelihood of structural solutions at a few of Barrick's key assets.

Furthermore, Barick's price-book ratio of 1.46 needs to be reassessed after recent announcements that its Reko Diq mine has received a production start date. Porgera also needs to be added to the equation, as a restart of the mine would add substantial worth to Barrick's tangible book value.

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Lastly, Barrick Gold's dividend yield is sublime at 2.79% with a three-year growth rate of 41.9%. Therefore, this stock provides income-seeking investors with a lucrative opportunity.

Concluding thoughts

In spite of its recent challenges, I believe Barrick Gold is set for a recovery in 2023. Barrick's mining portfolio could benefit from numerous restarts and ramp-ups this year, adding value across the board. Moreover, softening input costs coupled with supportive metal prices adds appeal to the miner's prospects.

Although it looks fairly valued according to its price multiples, Barrick's structural recovery might soon adjust its current valuation framework. Additionally, the stock has an excellent dividend profile, adding allure to its total return prospects.

Disclosures

I/we have no positions in any stocks mentioned, and have no plans to buy any new positions in the stocks mentioned within the next 72 hours. Click for the complete disclosure
Rating:
5 / 5 (2 votes)