Higher Gold Prices, Improving Production Will Drive Barrick’s Q2 Results

Barrick Gold stock (NYSE: GOLD) is expected to publish its Q2 2024 results in early August, reporting on a quarter that saw gold prices continue to trend upward. We expect earnings to come in at about $0.27 per share, up from $0.19 in the year-ago quarter, and roughly in line with consensus estimates, while revenue is expected to grow by about 7% year-over-year to $3.16 billion. So what are some of the trends that are likely to drive Barrick results for the quarter?

Barrick faced some production headwinds over the first quarter, due to a slower-than-expected ramp-up of the Pueblo Viejo mine, some maintenance-related activity, and lower grades of ore extracted from some mines. However, things are likely to be better in Q2. Barrick reported a preliminary Q2 production of 948,000 ounces of gold and 43,000 tonnes of copper for the quarter, led in part by higher production at its Turquoise Ridge, which saw the completion of maintenance activity.  However, things could remain mixed on the cost front. Barrick’s costs have been trending higher due to lower economies of scale and for Q2, the company expects the gold cost of sales per ounce and total cash costs per ounce to both rise by 0% to 2%. That being said, price realizations could also pick up a bit. Gold prices have been trending considerably higher, rising from levels of around $2,050 per ounce in early January to levels of over $2,390 per ounce toward the end of June, driven by cooling inflation, expectations of interest rate cuts by the Federal Reserve, and geopolitical uncertainties following the Israel-Gaza war. Overall Barrick says that the average market price for gold in Q2 was $2,338 per ounce while the average market price for copper in Q2 was $4.42 per pound.

GOLD stock has seen a decline of 20% from levels of $25 in early January 2021 to around $20 now, vs. an increase of about 45% for the S&P 500 over this roughly 3-year period. However, the decrease in GOLD stock has been far from consistent. Returns for the stock were -17% in 2021, -10% in 2022, and 5% in 2023. In comparison, returns for the S&P 500 have been 27% in 2021, -19% in 2022, and 24% in 2023 – indicating that GOLD underperformed the S&P in 2021 and 2023. In fact, consistently beating the S&P 500 – in good times and bad – has been difficult over recent years for individual stocks; for heavyweights in the Materials sector including LIN, SHW, and RIO, and even for the mega-cap stars GOOG, TSLA, and MSFT.

In contrast, the Trefis High Quality (HQ) Portfolio, with a collection of 30 stocks, has outperformed the S&P 500 each year over the same period. Why is that? As a group, HQ Portfolio stocks provided better returns with less risk versus the benchmark index; less of a roller-coaster ride as evident in HQ Portfolio performance metrics. Given the current uncertain macroeconomic environment with high oil prices and elevated interest rates, could GOLD face a similar situation as it did in 2021 and 2023 and underperform the S&P over the next 12 months – or will it see a recovery?

Barrick’s production is likely to pick up in the coming quarters, as the expansion of the Pueblo Viejo plant ramps while the Porgera mine restarts. For the full year, the company is guiding gold production of 3.90  to 4.30 million ounces and the company expects production to increase steadily over the next two quarters as well. The stronger production should also help to drive down costs.  The sentiment toward precious metals prices has also generally been bullish considering the relatively tight supply and a move by central banks to diversify their reserves by holding more 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 $17 price estimate for Barrick Gold, which is roughly in line with the 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] Returns as of 7/30/2024
[2] Cumulative total returns since the end of 2016

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