Barrick Stock Trades Below Intrinsic Value Despite Firm Gold Prices And A Strong Production Outlook

Barrick Gold stock (NYSE: GOLD) has declined by about 6% year-to-date.The underperformance comes despite the fact that gold prices have been trending a bit higher, rising from levels of around $1,800 per ounce in early January to levels of over $1,900 currently, 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 Q2 gold production was 3% lower year-over-year to 1.01 million ounces, partly due to scheduled maintenance on processing facilities at Carlin mine, although it did rise by 6% sequentially. Copper production declined 11% year-over-year.  The lower production also meant that average per-unit costs trended higher, impacting profitability. For example, the company says that all-in-sustaining costs for gold climbed 12% year-over-year to $1,355 per ounce from $1,212 per ounce. Costs for copper also rose to $3.13 per pound from $2.87 per pound a year ago. That being said, things are likely to get better going forward.

Notably, GOLD stock had a Sharpe Ratio of 0.1 since early 2017, which is lower than the figure of 0.6 for the S&P 500 Index over the same period. Compare this with the Sharpe of 1.2 for the Trefis Reinforced Value portfolio. Sharpe is a measure of return per unit of risk, and high-performance portfolios can provide the best of both worlds.

Barrick’s production is likely to pick up over the second half of this year, 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. The stronger production should also help to drive per-unit costs lower, helping profitability. The company is guiding for 4.2 to 4.6 million ounces of gold and 420 to 470 million pounds of copper production for the full year. The company has also been bullish on the trajectory of precious metal prices, 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 $22 price estimate for Barrick Gold, which is about 35% ahead of the current market price. See our analysis of Barrick Gold valuation: Expensive or Cheap 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.

[1] Month-to-date and year-to-date as of 9/5/2023
[2] Cumulative total returns since the end of 2016

Invest with Trefis Market Beating Portfolios
See all Trefis Price Estimates