Shares in mining group Barrick Gold (NYSE:GOLD) might not look that exciting anymore as vaccine hopes put pressure on the gold price but we think this commodity will continue to gain, albeit with perhaps less lustre than in 2020, and that the company’s fundamentals, despite weaker results last year, should provide further support to the share price.
Barrick shares rose more than 68 percent last year to a peak of $31.22 as investors switched to safe havens, but are now trading at $22.37, tracking the weaker trend in spot gold. Gold saw a bumper year in 2020 – its most exciting year ever according to Julius Baer analyst Carsten Menke, who expects the price to slow down in 2021. It peaked at $2072.50 in August.
Barrick gold production down 16%
Barrick Gold, like all mining groups, has been hit heavily by the pandemic with production rates languishing last year until a Covid safe return to work could be put in place. While it posted a decent recovery in its preliminary 2020 results on January 18, with a quarter-on-quarter rise in fourth quarter production, output was down about 16 % year on year.
We gave a positive outlook last week for gold in our report on Barrick peer Newmont (NEM:NYSE) and we are far from being alone. Modest bull Bank of America said it expected to see gold at $2063, down from an earlier forecast of $3000 but still up on today’s price of $1862.04. Goldman Sachs meanwhile forecast gold to go to $2300 on inflation and a weak US dollar.
As for the company fundamentals, results have been a tad lacklustre with the January 18 update prompting only a mild uptick in the share price. They were in line with previous company guidance with output of 4.76 million tonnes compared to expected production of 4.6 million to 5 million. Nothing to make us overly excited but in this pandemic climate, respectable nonetheless.
Looking beyond the COVID blip
And looking beyond what we could reasonably describe as a Covid blip, Barrick has a diverse portfolio with assets across the world, buffeting its exposure to some of the markets where costs, which have been a huge drag for miners during the pandemic closures, are high. It has also stated that it expects to rein in costs further, thereby expanding its margins.
From a balance sheet point of view, there is much to celebrate. The company has reduced its debt net of cash by 71 pct to just $0.4 billion and has a free cash flow of $1.3 billion. Back in October, its liquidity position prompted an upgrade to Baa1 with a stable outlook by Moody’s which said the company has “significant flexibility to manoeuvre through gold price volatility”. Barrick is also offering a reasonably attractive dividend, which it has raised three times in the last year and now stands at $0.99 per quarter.
Barrick Gold Corp is essentially a bet on gold, which might have seen its peak in 2020 but will likely be buoyed in 2021 as countries emerge from the pandemic and deal with the consequent economic fall-out, and on a company whose fundamentals and growing dividend support our investment case.