Barrick Gold Corp. (GOLD) is engaged in the production and sale of gold and copper, as well as related activities such as exploration and mine development. Barrick Gold Corporation was founded in 1983 and is headquartered in Toronto, Canada.
With losses of approximately 20% in 2021, Barrick Gold has underperformed the broader U.S. stock market. I am neutral on GOLD stock. Gold, amid the global reopening of economies, vaccination programs, and high inflation in the U.S., has not appreciated in 2021, but rather has losses of about 4% compared to its price in early January 2021.
Barrick Gold Business News
Twiga Minerals Corporation (Twiga), a joint venture between Barrick and the Government of Tanzania, has announced the acquisition of new prospecting licenses in Tanzania by Bulyanhulu Gold Mine Limited (Bulyanhulu), a subsidiary of Barrick. These licenses, according to the firm, are considered to be highly prospective.
Other business news includes the announcement that Barrick and NOVAGOLD have agreed on the next steps toward the advancement of Donlin Gold. The Donlin Gold project is located in Alaska, which is the second largest gold-producing state in the U.S.
What matters a lot to Barrick Gold shareholders is a stable and even better-increased dividend yield. The GOLD stock dividend has increased in 2021, reaching record levels.
“The payment of the $750 million return of capital distribution over the course of 2021, along with our quarterly dividend payments, will result in a total cash return to shareholders of approximately $1.4 billion during the year, which represents the highest annual cash payout to shareholders in Barrick’s history,” said senior executive vice-president and chief financial officer Graham Shuttleworth.
Dividend stocks are attractive to investors, providing total return consisting of price appreciation and dividend yield. For GOLD stock investors, who have incurred a loss by holding on to their shares all year during 2021, the declining stock price is mitigated by the increased dividend yield.
Third Quarter 2021 Results: Strong Free Cash Flow but Mixed Overall
Why do I consider the Q3 2021 earnings mixed? There has been an improvement over the previous quarter in key metrics, but on a year-over-comparison this improvement is absent.
For instance, Barrick Gold reported in Q3 2021 revenue of $2,826 million, net earnings of $347 million, and free cash flow of $481 million. In Q2 2021 the firm reported revenue of $2,893 million, net earnings of $411 million, and free cash flow of ($19) million. In Q3 2020 the firm reported even higher revenue of $3,540 million, net earnings of $882 million, and free cash flow of $1,311 million.
Barrick Gold said that it expects Q4 to be the strongest quarter of the year. Also, it points out that its balance sheet strength is supported by an operating cash flow of $1,050 million. This is true, as the financial strength of the company is very strong.
An analysis of the first nine months of 2021 makes me skeptical about the future of the GOLD stock price.
Risks To Consider: Quarterly Financial Performance
For the first nine months of 2021, Barrick Gold reported sales growth of -13.01%, -3.80%, and 1.39% for Q1, Q2, and Q3 respectively. Net income declined for all three quarters. In Q1, Q2, and Q3 net income growth was -23.68%, -25.93%, and -13.35% respectively.
There has been a lot of volatility to free cash growth in Q1, Q2, and Q3 2021, and that makes their trend unstable. In Q1, Q2, and Q3 the free cash flow growth reported was -25.38%, -99.76%, and 24,715.44% respectively. I like the surge in Q3, but I am very skeptical about the large decline in Q2.
Capital expenditures seem to have a more balanced trend but need to be closely monitored. Overall, I consider these large fluctuations in key metrics for Barrick Gold risky, and believe they make it difficult to find the stock attractive now, after the underperformance in 2021.
Valuation
GOLD stock seems relatively overvalued based on its PE Ratio (16.7x) compared to the U.S. Metals and Mining industry average (8.8x) and based on its PEG Ratio (7.9x) compared to the industry average of 2.6x.
Wall Street’s Take
Turning to Wall Street, Barrick Gold has a Strong Buy consensus rating based on nine Buys and three Holds assigned in the past three months. The average Barrick Gold analyst forecast of $25.35 implies a 36.73% upside potential.
Disclosure: At the time of publication, Stavros Georgiadis, CFA did not have a position in any of the securities mentioned in this article.
Disclaimer: The information contained in this article represents the views and opinion of the writer only, and not the views or opinion of TipRanks or its affiliates Read full disclaimer >
