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Barrick Gold’s (NYSE: GOLD) share price has plunged by 27% since the start of the year. Clearly, this is hugely disappointing in a period where the S&P 500 and FTSE 100 have risen by 17% and 7%, respectively.

The company’s performance has been negatively impacted by a falling gold price. It has dropped by 7% year-to-date as investors have become increasingly concerned about the prospect of interest rate rises.

Although the Federal Reserve believes that a rising inflation rate that recently reached a 13-year high of 5.4% is transient due to the effect of economic reopening, investors appear to be pricing in the prospect of a tighter monetary policy.

Therefore, the price of gold could continue to disappoint in the near term – even though the precious metal has historically been viewed as a hedge against inflation. This could lead to further volatility in Barrick Gold’s share price in the short run.

Long-term prospects for Barrick Gold

However, the long-term prospects for the stock appear to be relatively attractive. Its latest quarterly update showed that it is on track to meet production guidance for the full year. Meanwhile, it is making encouraging progress with its development pipeline. This helps to differentiate it from peers in an industry where declining reserves and a lack of high-quality development projects are commonplace.

Furthermore, Barrick Gold generates around 18% of its revenue from the sale of copper. It provides a degree of diversification from volatility in the gold price. It also allows the company to participate in the prospect of rising demand for the metal, since it is used heavily in areas such as renewable energy assets, electric vehicles and urban construction. They are likely to experience high demand as the world pivots towards a zero emissions future and longstanding trends such as urbanisation continue.

A date for your diary

On the 21st of October, Stuart Fieldhouse will be joining Sarah Lowther and Mark Watson-Mitchell to discuss which small cap investments they like the look of and, perhaps, which ones they do not. It promises to be a lively and insightful discussion. If you are interested in investing in small cap stocks then this could be a profitable use of your time. We hope you can make it! Sign up now

In addition, the company has a relatively sound balance sheet. It has only negligible net debt due to its $5.1bn cash position. Furthermore, its all-in sustaining cash costs (AISC) for gold of $1,087 per ounce suggest it has the potential to deliver relatively high levels of profitability even if the gold price experiences a further short-term fall from its current level of $1,760 per ounce.

Investment outlook for Barrick Gold

Following its share price decline, Barrick Gold now trades on a forward price-earnings ratio of 14.8. This suggests it offers fair value for money against the backdrop of a buoyant global equity market, although it is not currently forecast to deliver meaningful earnings per share growth over the next two years.

Barrick Gold’s dividend yield of 2% is relatively modest in comparison to some sector peers. However, it is forecast to be covered over three times by earnings in the current year. Additionally, the firm is expected to make a third and final return of capital amounting to $250m over the coming months to supplement its dividend payments.

Overall, Barrick Gold appears to be in a sound financial position with strong development projects that could catalyse its shares over the long run. Its copper business provides an additional growth opportunity, while its valuation suggests its shares offer a margin of safety during what could prove to be an uncertain period for the gold mining sector.

If you are a sophisticated mining investor interested in The Armchair Trader’s private mining events, where you can meet mining CEOs, please register your interest with our events team by emailing brian@thearmchairtrader.com

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Please note this article does not constitute investment advice. Investors are encouraged to do their own research beforehand or consult a professional advisor.

Robert Stephens

Robert Stephens

Robert Stephens is a CFA Charterholder who has around 15 years’ experience working in the financial services industry.

The vast majority of that time has been spent working as an Equity Analyst, with a focus on FTSE 350 shares in the consumer goods, consumer services and retail sectors.

He has also contributed to a wide variety of media publications on a freelance basis, including The Telegraph, What Investment, Master Investor and Citywire.

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A date for your diary

On the 21st of October, Stuart Fieldhouse will be joining Sarah Lowther and Mark Watson-Mitchell to discuss which small cap investments they like the look of and, perhaps, which ones they do not. It promises to be a lively and insightful discussion. If you are interested in investing in small cap stocks then this could be a profitable use of your time. We hope you can make it! Sign up now

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