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APRIL 2020 BARRICK GOLD

"Barrick Gold Corp. should benefit from debt reduction activities and the progress of its key projects. It has a strong liquidity position. The merger with Randgold, JV and Newmont is another growth factor for the company. Barrick's revenue estimates for the first quarter of 2020 have grown over the past two months.”

ANALYSIS ON THE GROWTH OF THE PRICE OF BARRICK GOLD SHARES

Company introduction

Based in Toronto, Canada, Barrick Gold Corporation is the world's largest gold mining company. The company owns a large number of advanced projects, both exploratory and development, located on five continents.

The company is one of the leading gold producers, such as Newmont Goldcorp (based in the United States) and AngloGold Ashanti (based in South Africa). In 2019, the company produced 5.5 million ounces of gold and 432 million pounds of copper. At the end of 2019, Barrick owned 71 million ounces (oz) of proven and probable gold reserves and £ 13 billion of copper reserves. The company's full-year revenue in 2019 was $ 9.72 billion, up 34% year over year.

The company's strategy aimed at creating shareholder value is focused on the following key areas:

  1. Maximize the benefits of rising metal prices by meeting operational and financial goals.
  2. Increasing gold and copper reserves and production through exploration and selective     acquisitions.
  3. Maximize the value of existing mines by using expertise and regional infrastructure.
  4. Growth in gold and copper production through investment in high-return projects.

The company expects that the implementation of the set strategy will lead to an increase in revenues and cash flows.

In September 2018, Barrick Gold entered into a share-to-share exchange agreement with Randgold Resources Ltd. The merger was successfully completed on January 1, 2019. The business created a leading company in the global gold mining industry and strengthened the company's market position. Due to the merger, the company is able to generate a strong cash flow to support robust investments and ensure a return on investment for shareholders.

Graph: earnings development per share (EPS) in history
and expectations. Source: equities.com

Graph: company revenue in billion USD. Source: equities.com

Factors that led us to an analysis of the potential rise of the price of Barrick Gold Corp. shares

  • Barrick shares rose sharply by 78.8% last year. For comparison, the growth of the industry as a whole was 40.7%. Barrick has been pushing to reduce credit indebtedness for a long time. In the last three years, the company has reduced its total debt by more than 50%. In 2017, by about $ 1.5 billion to $ 6.4 billion, exceeding its goal of reducing debt by $ 1.45 billion. In 2018, Barrick Gold reduced its total debt by 10.5% year-on-year to about $ 5.7 billion. Finally, in 2019, the company managed to reduce its total debt by 3.2% year-on-year to $ 5.5 billion.

  • An aggressive approach to debt reduction will help companies better deal with interest costs. Barrick also has a strong liquidity position and generates healthy cash flows. This allows it to make the most of the benefits of exploring and developing attractive projects and acquisition opportunities. At the end of 2019, the company's cash and cash equivalents increased 111% year-over-year to $ 3.3 billion. At the same time, it announced in the fourth quarter of 2019 a dividend increase of 40% to 7 cents per share.

  • After the tumultuous year of 2018, gold experienced rocket growth in 2019. In the third quarter of 2019, gold prices exceeded $ 1,500 an ounce. Uncertainties about the development of the US trade war with China, the weakened US dollar, global geopolitical tensions and Trump's threats to anyone last year were triggers for the growth of demand for gold.

  • This year's crisis with coronavirus has led to a further rise in gold prices caused by demand for "safe investment ports". Current supporting factors for gold are falling oil prices and the re-escalating global geopolitical tensions. In addition, the average sales price from gold sales increased by 21% year-on-year in the last reported quarter, which significantly increased the company's margins.

  • It is expected that higher gold prices will continue to help increase the company's revenues in 2020 due to high market volatility and economic uncertainties.

The company continuously continues to expand its business activities and invest with high returns. Barrick Gold is expected to benefit significantly from major exploration projects. The company's attention is largely focused on Nevada, as a place with many for growth opportunities. Much of the research budget was allocated in America.

  • The main growth projects for Turquoise Ridge, Goldrush and Cortez Deep South in Nevada are now under construction and are expected to begin contributing to production in early 2021.
  • It should be noted that all the mentioned growth projects develop both according to the schedule and within the set budget and form the basis of the next generation of profitable production in the region. Currently, mining in Nevada boasts 10 underground mines and 12 surface mines, which together have proven and probable gold reserves of more than 48 million ounces.
  • Barrick Gold should also benefit from the merger with Randgold, one of the leading companies in the gold mining industry. The merger strengthened Barrick Gold's position among leading gold companies such as Newmont Goldcorp and Agnico Eagle. Barrick now owns five of the industry's top 10 locations, including the Cortez and Goldstrike mines in Nevada. Compared to the largest competitors, Barrick operates with the lowest total financial costs and owns high-quality underground gold reserves. Barrick also has an extensive regional presence in many of the world's most fertile golden areas.
  • All of the above factors support the sustainable growth of the company and create long-term value. In addition, Barrick and Newmont Goldcorp have fulfilled an agreement to implement the Nevada Gold Mines joint venture. The joint venture combines the sharing of mining operations, assets, reserves and resources. The Nevada Gold Mines Joint Undertaking is expected to generate $ 450-500 million annually during the first five years of full production. Altogether, this joint project is expected to generate $ 5 billion over the next twenty years. The Nevada Gold Mines complex is set to become the world's largest gold mining site.

Warning of potential risks for Barrick Gold Corp.

  • In 2020, the company faces higher costs, which will be reflected in the year-on-year comparison mainly in lower revenues, higher energy costs together with higher costs for mining equipment and maintaining capital expenditures. The company expects sustainable costs (AISC) to be in the range of $ 920 - 970 per ounce. This figure is much higher than $ 894 per ounce in 2019. The cost of sales in 2020, according to the company's outlook, should be in the range of 980 - 1,030 USD / ounce.

  • The company is witnessing some problems at the Cortez mine. In the fourth quarter of 2019, lower quality ore affected the cost traffic in the mine. The benefits of higher production at the Cortez mine were negatively offset by lower grades of mined ore.

  • The outbreak of deadly coronavirus in China could damage demand for gold in the short term. While companies operating in the sector are experiencing a sharp rise in gold prices, Chinese demand for gold could stagnate. China is the world's largest consumer of gold, and a pandemic could have a negative cascade of global demand.

Results in the fourth quarter of 2019

Barrick Gold's revenue and sales in the fourth quarter exceeded analysts' expectations.Barrick Gold had net income of $ 1.387 billion, that means 78 cents per share. By comparison, in the same period in 2018, the company recorded a net loss of $ 1.197 billion. Excluding non-recurring items, adjusted earnings per share (EPS) increased by 183.3% year-on-year to 17 cents. Analysts expected EPS to reach 14 cents per share. Barrick Gold had total sales of $ 2.883 billion in the quarter, up 51.4% year over year.

Overall results in 2019

For 2019, the company reported earnings of $ 3.969 billion ($ 2.26 per share), compared to a net loss of $ 1.545 billion in 2018. Revenue in 2019 increased 34.2% year-over-year to $ 9.717 billion.

Operating results

Total gold production in the fourth quarter of 2019 was 1.44 million ounces, a year-on-year increase of 14% from 1.26 million ounces in 2018. The average realized price of gold in the quarter was $ 1,483 per ounce, a year-on-year increase of an increase of 21.3% from $ 1,223 per ounce. Cost of sales increased 6.7% year-over-year to $ 1,046 an ounce. Fixed costs increased 17.1% year-on-year to $ 923 an ounce. Copper production rose 7.3% year on year to 117 million pounds. The average realized price of copper was $ 2.76 per pound.

Financial position

At the end of 2019, Barrick Gold held $ 3.314 billion in cash and cash equivalents, a year-over-year increase of 110.9%. As of December 31, 2019, the company's total debt was approximately $ 5.5 billion, compared to $ 5.7 billion as of December 31, 2018. Net cash flow from operating activities increased by 60.5% year-on-year to $ 2.8 billion in 2019. USD. The company's Board of Directors for the fourth quarter of 2019 also announced a 40% increase in dividends to 7 cents per share.

Outlook

In 2020, the company expects gold mining in the range of 4.8 to 5.2 million ounces at an AISC of $  920 - 970 per ounce. Costs of sales are expected to range from $ 980 to $ 1,030 per ounce. The company expects copper mining to be in the range of 440-500 million pounds, that the AISC will oscillate between $ 2.20 - $ 2.50 per pound and that selling expenses will be in the range of $ 2.10 to $ 2.40 for a pound. Capital expenditures are estimated by the company's management at 1.6 - 1.9 billion USD.

Hypothetical example - CFD on Barrick Gold Corporation shares

  • Invested amount 1 million CZK … 39,478 USD (CNB exchange rate as of 4/21/20)

  • CFD stock contract type

  • Leverage 1:5

  • Margin 20 % of the CFD stock value

  • Price 24.82 USD/CFD shares (WebTrader as of 4/21/20)

  • CFDs … value 24.82 USD … 20% margin … 4.964 USD

  • Target Price1 … > 28 USD/CFD share

  • Target Price2 … > 32 USD/CFD share

  • Support … 20.13 USD/CFD share

  • With a full 100% investment, up to 7,952 shares could be purchased at a margin of $ 4,964. However, under the unwritten rule of investors, the maximum amount invested should never exceed 50% of the investor's free funds.

  • In the case of the purchase of 1 CFD share Barrick Gold, the movement of the price to
    32 USD/CFD share offers the potential of 7.18 USD - 718 USD for 100 CFD shares.

  • If 50% of available funds were invested and 3976 CFD shares were purchased, a price movement of $ 7.18 would increase the potential appreciation of the analysis to approximately $ 28,547.

  • However, in the event of a negative development and a decrease in the CFD share price to USD 20.13, the same trade would mean a loss to the investor in excess of 40% of the investor's total funds.


Please note that with regard to the size of the trading account and the size of the market, it is essential to adjust the size of the leverage and adjust the degree of selected risk accordingly. Trading CFD contracts and Forex is high risk and improperly set risk management can result in the loss of much or all of the investor's funds.

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