Why Barrick Stock Is Underperforming Despite Strong Gold Prices

Barrick Gold stock (NYSE: GOLD) has remained roughly flat year-to-date trading at about $17.50 per share currently. The underperformance comes despite the fact that gold prices have been trending higher, rising from levels of around $1,800 per ounce in early January to levels of over $2,000 in early May, driven by cooling inflation, slower interest rate hikes by the Federal Reserve, and concerns about the U.S. banking system. However, Barrick has been weighed down by weaker production rates. Over Q1, the company saw revenues fall by 7.4% year-over-year to $2.64 billion, with net income also falling to $120 million from $438 million in the year-earlier quarter. The company’s gold production fell to a multi-year low of 952,000 ounces, down about 4% from the same quarter last year, partly due to planned maintenance at the company’s Nevada Gold Mines. The company’s copper production, too, fell by about 12% year-over-year due to lower production at the Lumwana and Zaldivar mines. The lower production also meant that average per unit costs trended higher, impacting profitability.

Is Barrick stock a buy at current levels? We think it is, for a couple of reasons. Firstly, Barrick’s production is likely to pick up a bit going forward driven by the completion of major processing plant maintenance at Nevada Gold Mines, the upgrade of Goldstrike ore processing infrastructure, better performance from Turquoise Ridge, and a steady ramp-up at Pueblo Viejo. Overall, the company’s guidance range is wide, targeting 4.2 to 4.6  million ounces of gold, marking an increase form around 4.141 in the year-ago period, and 420 to 470 million lbs of copper compared to 440 million lbs in the year-ago quarter.  The company is also bullish on the trajectory of precious metal prices as well, citing relatively tight supply and a move by central banks to diversify their reserves by holding gold in place of the U.S. Dollar. Separately, Barrick’s move to scale up its copper business could drive an incremental upside for the stock, given its application in a host of futuristic industries including electric vehicles and the renewable energy sector. We have a $21 price estimate for Barrick Gold, which is about 20% ahead of the current market price. See our analysis of Barrick Gold valuation for more details. Also, see our analysis of Barrick Gold Revenues for more details on the company’s key revenue streams and how they have been trending.

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