This article is proudly sponsored by Lake Region State College!

About Barrick

Gold. 

You dig it?

No, of course you don’t, but you can believe on everything that Toronto-headquartered Barrick Gold digs it, because Barrick is quite literally one of the largest gold and other major precious metal mining companies on the planet.

The company’s main focus is on locating lucrative mining regions and sites, putting machines well into the ground and through the top layer of the earth, extracting bits and pieces of the rocks below ground level and cracking open enough rocks that contain gold and ultimately turning around and selling this gold at a profit.

From deposits in the earth to deposits in Barrick’s accounts receivable.

Clearly, as we have seen with other mining companies, precious metals such as gold are commodities and commodities tend to fluctuate in price a good amount, particularly experiencing sharp ups and/or downs based primarily on supply and demand boundaries which can be stretched by a multitude of factors. 

For instance, Econ 101 tells us that if demand for a certain object (or commodity in the case of Barrick Gold) increases, so will the price, and vice versa, therefore, if, let’s say, during a high inflationary environment such as the one we’ve all experienced over the last couple of years, investors broadly might become much more inclined to stash their investable capital into what is considered to be a safer asset class than equities (fancy word for stocks), such as gold, pushing the price of gold itself up as a result.

In addition to this rather basic supply and demand driven dynamic that is always at play, as we have specifically seen in recent history, other factors and externalities can push the price of gold (and other commodities for that matter) up or down, one of the largest current looming factors being geopolitical unrest, or wars.

In similar fashion to another well known commodity by the name of oil, whenever there is even a mere peep of instability overseas, let’s say in the Middle East, the price of oil tends to shoot up like a rocket, as does the price of gold as well, primarily caused by the perception (or reality, at times) of scarcity combined with general market fear(s).

Evidently, the price of gold (and other precious metal commodities that Barrick also produces such as copper) is subject to a lot of externalities and while it is generally viewed as a sort of safe haven investment vehicle and asset class, companies such as Barrick Gold Corporation are subject to these price changes which do invariably bear some form of impact, good or bad, on its daily, weekly, monthly and annual business operations and the eventual performance of the company.

As a brief example, if the price of gold were to increase due to news of some geopolitical unrest overseas, this could be seen as more of a pro than a con for a firm such as Barrick because they automatically maintain a greater incentive to mine, produce and sell since demand is high, and as a natural byproduct, is able to boost its margins while the price of gold runs high and people are in the market for the hot commodity.

Nevertheless, things are always good until they’re not and as I am typing these words on my keyboard, the price of gold has been falling a bit due to easing of geopolitical fears across the pond, and with that, Barrick’s share price (NYSE: GOLD) in recent history.

That’s gold, those are some of the basic supply and demand elements and price influencers behind gold and here is more of a better, focused financial picture of Barrick.

Barrick’s stock financials

With a current market capitalization of $29.3 billion and a directly correlated stock price of $16.61, Barrick is also home to a price-to-earnings (P/E) ratio of 23.03 and also dishes out an annual dividend of $0.40 per share, all initially being pretty mundane as the only thing that is somewhat interesting (to me, at least) is the company’s ever so slightly overvalued price-to-earnings ratio, indicating that Barrick’s stock price (NYSE: GOLD) is trading at a slightly elevated level in comparison to its actual, fair value worth, which makes sense given the sheer run that gold itself has had in recent months, but it is nevertheless a positive in that it doesn’t appear as though the miner’s share price ran up too much, too fast, and if one happens to be as bullish on gold in the long run as I am, then slightly overpaying for an ownership stake in a premier global gold miner might just be a great option.

To speak briefly to the company’s global scale, Barrick has mining operations in natural resource-blessed regions such as Nevada, the Democratic Republic of Congo, Canada, Papua New Guinea, Chile, Tanzania along with other geographies across the globe.

Onto the rest of the company’s primary financials, Barrick’s executive team is in charge of just about $45.8 billion in terms of total assets as well as in the order of $22.5 billion in terms of total liabilities, which, for such a large global industrial company that is constantly being subjected to price taking as opposed to price making, houses a terrific overall balance sheet, with its total assets outweighing its total liabilities by a substantial margin, allowing the firm to not only sufficiently sustain current operations but also (and perhaps more importantly) grow its geographical and operational footprints and pounce on new production sites when demand for gold rises.

In this respect alone, Barrick is well positioned.

Onto the condition of the company’s income statement, Barrick Gold’s revenues have been stable in more recent history, floating in the $11 billion area code between and during 2021 and 2023 (more than likely due to steady heightened demand due to the prevailing inflationary concerns and pressures, among other factors boding well for a higher price for gold), however, in 2020 it experienced a sizable jump from 2019, starting out in 2019 at around $9.7 billion, leaping the following year to almost $12.6 billion, as reported in 2020, likely attributable to the explosion of market volatility during and directly after the brunt of COVID-19, as the stock market crashed and investors across the board fled towards safe haven investments, gold, silver and copper included.

In summation, we are happy to find that demand for gold has remained rather elevated in the strict context of Barrick and its revenues, however, just remember that this company is more sensitive than others when it comes to underlying commodity price fluctuations and like most things in life, the tide will more than likely turn at some point.

Moving right along to the company’s cash flow statement, Barrick’s total cash from operations have ranged a good deal (which, again, was to be expected for a commodity-driven company), unsurprisingly extracting more cash from its primary mining operations during years of stock market and geopolitical turmoil and extracting less when the pond was a bit more placid, ranging between $2.8 billion (2019) nearly doubling to a relative high of $5.4 billion in the following year (again, COVID).

Barrick’s stock fundamentals

In relation to the company’s most recently listed trailing twelve month (TTM) net profit margin (as it is shown on TD Ameritrade’s platform), Barrick Gold Corporation has a 17.14% metric in this respect whereas the industry’s listed average is listed as 7.90%, evidently favoring today’s company in question and telling me that Barrick is simply considerably better when it comes to generating a profit than its peers (on average), further alluding to the fact that it is perhaps much more efficient within its operations and therefore has less costs to facilitate and manage than those it brushes up against.

If we want to be brutally speculative, perhaps this is a mild (or maybe not-so-mild) byproduct of the company having the vast majority of its operations in impoverished, politically unstable countries and regions, affording itself the opportunity to leverage relationships with government officials and ultimately not pay the highest of wages for such inherently strenuous, dangerous and time consuming work.

We do not know this to definitively be the case, but at the base case it is something to ponder from both the perspective of morality and objective dollars and cents.

With respect to the company’s TTM core returns on both its assets and investments, also according to the figures shown on TD Ameritrade’s platform, Barrick’s are in good standing overall with its TTM return on assets standing at 4.26% to the industry’s average of -1.44%, and while a little less impressive, the company’s displayed TTM return on investment is well in line with the industry’s average, standing at 5.65% to the industry’s comparable average of 7.37%, which, if there are any points to be made or minor (or miner, depending on how you’re feeling) excuses to be made, Barrick is indeed one of the largest gold miners in the world and companies with this sort of size and scale tend to have more muted TTM return on investment figures by virtue of being so large and having so many moving parts within its operations, therefore taking a bit longer to garner returns from the investments it has already laid and continues literally putting into the ground.

Should you buy Barrick Gold stock?

For the cyclical gold play, absolutely, in my humble opinion, however, many would say that we are on the backend of this cycle given gold’s impressive recent run to $2,400.

However, given the current state of the economy and my personal beliefs that the next corner of the economy to endure some hurt is the commercial real estate sector (leading to eventual calamity that will bleed into the residential real estate segment of the economy, as well, again, this is just my opinion given the facts laid out in front of me such as mortgage delinquencies and plummeting metropolitan office complex values), I am still a proponent of gold for now, as regardless of rhyme or reason, when there is a whiff of the economy crumbling or a single segment thereof, gold and other metals tend to perform quite well as we’ve seen in recent months.

As a long-term holding consideration, Barrick has a lot of positive tailwinds such as the state of the current economy (as it will likely keep the price of gold fairly high and thus its revenues for the foreseeable future), its balance sheet is in truly excellent shape, its cash flows have been strong for the most part and well aligned with the revenues it has generated, and its TTM net profit margin and aforementioned core TTM return metrics have proven themselves to be in good positions as well.

All in all, Barrick Gold Corporation in its own right has earned a “buy” rating in my book, both in the context of it continuing to be a more short-term cyclical play as well as in the light of being a longer-term holding.

DISCLAIMER: This analysis of the aforementioned stock security is in no way to be construed, understood, or seen as formal, professional, or any other form of investment advice. We are simply expressing our opinions regarding a publicly traded entity.

© 2024 MacroHint.com. All rights reserved.