Barrick Gold Corporation’s GOLD shares have lost 21.1% in the past three months, underperforming the Zacks Mining – Gold industry’s 10.9% decline.
GOLD’s shares are trading roughly 27% below its 52-week high of $21.35, reached on Oct. 21, 2024. The downward spiral in GOLD’s stock partly reflects its weaker-than-expected earnings performance in the third quarter on lower gold production and higher costs despite higher realized gold prices. GOLD’s third-quarter 2024 gold production fell roughly 9% from the prior-year level. It sees attributable gold production to be at the bottom end of its previously announced guidance range of 3.9-4.3 million ounces. Operational issues across certain mines are expected to impact 2024 production. The gold-mining giant’s shares have also been down around 9% over the past month as it remains caught up in a dispute with the Malian government over dividing the economic benefits from its Loulo-Gounkoto gold mine complex.
Technical indicators show that GOLD has been trading below the 50-day simple moving average (SMA) since Oct. 30, 2024. The stock is also trading below the 200-day SMA since Nov. 25, 2024. Following a death crossover on Dec. 24, 2024, the 50-day SMA is reading lower than the 200-day SMA, indicating a bearish trend.
GOLD Trades Below 50-Day SMA
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Given the pullback in GOLD’s shares, investors might be tempted to snap up the stock. But is this the right time to buy GOLD? Let’s find out.
Key Projects to Underpin Production Growth for GOLD
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 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 Barrick’s Margins and Cash Flow
Gold has been among the best-performing assets in 2024. Gold prices rallied roughly 27% last year, driven by strong demand from central banks, monetary easing in the United States, global uncertainties and a surge in safe-haven demand thanks to increased tensions in the Middle East and Russia. Prices hit a record high of $2,748.23 per ounce in October. After a momentary pullback in early November due to a rally in the U.S. dollar following Trump's win in the U.S. Presidential election, gold prices regained strength on Federal Reserve interest rate cuts. While a stronger U.S. dollar and prospects of fewer interest rate cuts in 2025 are weighing on the yellow metal lately, prices are likely to gain support on expectations of increased purchases by central banks and geopolitical tensions. Higher gold prices should translate into strong profit margins and free cash flow generation for GOLD.
GOLD’s Robust Liquidity & Attractive Dividend Bode Well
Barrick has a solid liquidity position and generates healthy cash flows, positioning it well to take advantage of attractive development, exploration and acquisition opportunities, 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 2.5% 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 roughly 7%.
Higher Costs Weigh on GOLD 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 full-year 2024, which indicates a year-over-year increase at the midpoint of the respective ranges. Increased mine-site sustaining capital spending, higher labor costs and potentially steeper energy costs may lead to higher costs.
Valuation Looks Attractive for GOLD Stock
GOLD’s attractive valuation should lure investors seeking value. The stock is currently trading at a forward 12-month earnings multiple of 8.79X, lower than its five-year median. This represents a roughly 28% discount when stacked up with the industry average of 12.14X.
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Barrick’s Earnings Estimates Moving Down
Earnings estimates for Barrick have been revised downward over the past 60 days. The Zacks Consensus Estimate for 2024 and 2025 has 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 despite the rally in gold prices. GOLD’s shares have lost 12.3% over the past year, underperforming the industry’s 14.5% increase and the S&P 500’s rise of 26%. Among its peers, Newmont Corporation NEM has lost 6.1%, while Kinross Gold Corporation KGC and Agnico Eagle Mines Limited AEM have racked up gains of 70.3% and 51.8%, respectively, over the same period.
GOLD’s One-year Price Performance
Zacks Investment Research
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Final Thoughts: Hold Onto GOLD Stock
Barrick’s growth initiatives, actions to boost production, solid financial health and a safe dividend yield paint a promising picture. The strength in gold prices should also boost its profitability and drive cash flow generation. Despite GOLD’s attractive valuation, its high production costs warrant caution. Therefore, it is not advisable to buy the dip in this Zacks Rank #3 (Hold) stock. Holding onto GOLD 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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