Barrick Gold (ABX:CA) (GOLD)
Barrick Gold Corp (GOLD) – Q3 2024 Earnings Analysis
Barrick Gold Corp’s third-quarter earnings missed analyst expectations, primarily due to increased costs and reduced production, especially in Nevada, its largest operating region. However, the company expressed optimism for a stronger fourth-quarter performance as it ramps up production in key locations.
Key Highlights:
- Production Challenges and Output Decline:
- Nevada Gold Mines: Barrick’s total gold output in Nevada dropped to 385,000 ounces in Q3, down from 401,000 ounces in the previous quarter. This decline impacted overall profitability, as Nevada Gold Mines is a core asset within Barrick’s portfolio.
- Higher Costs: The decline in production coincided with an increase in operational costs, which further pressured margins and contributed to the earnings miss. Barrick’s higher expenses in Q3 align with the broader trend in the mining sector, where inflation and labor costs have raised operational expenses.
- Positive Outlook for Q4 Production:
- Pueblo Viejo Ramp-Up: The company expects Q4 production gains as it increases output at Pueblo Viejo in the Dominican Republic, a significant contributor to Barrick’s total production volume. Pueblo Viejo has recently undergone capacity expansions, and this ramp-up should boost Barrick’s total output and profitability in the coming quarter.
- Nevada Mines: Barrick expects improved output from Nevada Gold Mines in Q4, driven by increased production efficiencies and seasonal adjustments.
- Loulo-Gounkoto in Mali: Despite facing a government-related dispute, Barrick anticipates full-year production from its Loulo-Gounkoto project to reach the upper end of its forecast range. This is an encouraging signal, as Mali is an important location for Barrick’s African operations.
- Financial Performance:
- Adjusted Earnings: Barrick posted adjusted earnings of 30 cents per share for Q3, narrowly missing Wall Street expectations of 31 cents per share. While the miss was minor, it highlights the impact of production and cost challenges on profitability.
- Annual Production Guidance: Barrick reaffirmed its annual production outlook, suggesting confidence in achieving strong fourth-quarter results to meet its full-year goals.
- Market and Analyst Sentiment:
- Analyst Ratings and Target Price: Barrick’s stock has an average target price of CAD 30.11 among 11 analysts, who rate it as a Strong Buy. This reflects a positive long-term outlook on Barrick’s operational improvements, potential production increases, and resilience in gold prices.
- Recent Stock Performance: Barrick’s stock closed at CAD 25.72, reflecting a recent downturn of -7.75% over the past week and -5.68% over the past month. Nevertheless, the stock has seen +18.58% growth over the last year, likely driven by stronger gold prices and improved production efficiency in key regions.
Fundamental Analysis
Stock Target Advisor Analysis: Stock Target Advisor’s fundamental analysis is Slightly Bullish, noting 7 positive indicators and 5 negative ones..
Positive Fundamentals:
- Low Volatility: Stable and consistent annual returns, placing it in the top quartile compared to sector peers.
- Positive Cash Flow: Positive cash flow and free cash flow over the last four quarters.
- Positive Free Cash Flow: The company had positive total free cash flow over the past four quarters.
- Superior Capital Utilization: High return on invested capital, also in the top quartile.
- Superior Total Returns: Outperformed sector peers in annual total returns over the last 5 years.
- High Market Cap: One of the largest companies in its sector, offering stability.
- Strong Earnings Growth: Top-quartile earnings growth over the past 5 years.
Negative Fundamentals:
- Low Dividend Yield: Below-median dividend returns compared to peers, which may not appeal to income-focused investors.
- Below median dividend returns: The average income yield over the past 5 years is low compared to its peers.
- Poor Risk-Adjusted Returns: Below median in risk-adjusted returns; returns may be volatile.
- Overpriced Based on Cash Flow: Priced higher than the sector median on both price-to-cash flow and price-to-free cash flow.
- Low Revenue Growth: Below-median revenue growth over the past 5 years in its sector.
Investment Considerations:
- Near-Term Potential: With Barrick’s Q4 production ramp-ups in Pueblo Viejo and Nevada, there is potential for an earnings rebound, especially if costs stabilize.
- Long-Term Outlook: The “Strong Buy” consensus rating and slightly bullish sentiment indicate confidence in Barrick’s strategic positioning and potential growth in a rising gold price environment.
- Risks: Ongoing cost pressures, as well as political and operational risks in Mali, could weigh on the stock if not resolved. However, Barrick’s diversified global footprint provides some resilience against these region-specific issues.
While Barrick missed Q3 expectations, the company remains on track for a strong year-end performance. With fourth-quarter production improvements anticipated, Barrick could see a recovery in profitability and stock performance, particularly if gold prices remain favorable.
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