Fun Trading


Investment Thesis

The Toronto-based new Barrick Gold (GOLD) is one of the largest gold producers worldwide and is part of my long-term gold portfolio, for now, a few years. Barrick Gold is also producing copper from two joint ventures, and Lumwana mine 100% owned.

It is a difficult task to describe the company on Seeking Alpha because the company owns a broad asset portfolio, and it is in the process of reshaping its gold assets after its merger with Randgold.

In December 2019, Barrick sold 90% of its stake in the Massawa project for $430 million and closed the divestiture of its 50% stake in Kalgoorlie mine for $750 million.

Barrick Gold is one of the three gold miners that I consider my core long-term “gold miners.” The two other gold producers are Newmont Goldcorp (NEM) and Agnico Eagle (AEM).

Barrick Gold and Agnico Gold have outperformed the VanEck Gold Miners ETF (GDX) on a one-year basis. Only Newmont Goldcorp has slightly underperformed due to the problematic integration of Goldcorp’s assets. However, it has been a good year for my long-term gold portfolio with an increase averaging 45%.

The size of Barrick Gold makes it a perfect proxy for gold. The general outlook seems exciting, especially with a high price of gold entering 2020.

The general investment thesis that I recommend for Barrick Gold is to keep a long-term position that can be built-up with a slow accumulation using weakness. At the same time, I recommend using a maximum of 35%-40% of your total GOLD holding, for the short-term trading, primarily to take advantage of the volatility of the gold sector. It is wise to get your dividend in share.

The difference between my core gold miners and the rest is that I allocate a smaller part for the short-term trading, and I avoid to sell out unless the stock has reached my long-term target usually pretty high.

Barrick Gold has transformed its profile drastically since last year
New Barrick Gold has grown dramatically in size. Barrick Gold includes the acquisition of Randgold Resources and the joint venture with Newmont Goldcorp in Nevada.

On September 24, 2018, Barrick Gold [ex-ABX] and Randgold Resources [ex-GOLD] announced that they have agreed to an all-share merger that will form the most prominent gold company in the world.

Also, Barrick Gold and Newmont Goldcorp created a 38.5% [for Newmont]/61.5%[for Barrick] joint venture called Nevada Gold Mines, NGM, with Barrick as an operator for assets located in Nevada with apparent synergies.

The new Barrick Gold total gold production in 4Q’19 was 1,439 K Au Oz (see details below).

Randgold is operating exclusively in Africa, and now Barrick Gold has six mines producing including Acacia in Tanzania [e.g., Loulo-Gounkoto (80%), Kibali (45%), North Mara, Buzwagi, Bulyanhulu, Tongon (89.7%)] with a production of 432K Oz in 4Q’19.

On October 21, 2019, Barrick Gold and Tanzania reached a $300 million deal on Acacia Mining.

Tanzania will get a 16% stake in each of the Bulyanhulu, North Mara and Buzwagi mines, which will be managed by a new operating company called Twiga Minerals to be formed following the review. Twiga Minerals will be headquartered in Mwanza, Tanzania.

Production for the joint venture with NEM was 585K Au Oz in 4Q’19 compared to 535K Oz sequentially. This amount represents Cortez, Goldstrike (including South Arturo), 75% of Turquoise Ridge, Phoenix, and Long Canyon, both at 61.5%.

Total gold sold in 4Q’19 was 1,413 K Oz and 91 M Lbs of Copper.

Details are indicated below:

Below is Gold production history.

Gold Production Details (ex-Barrick Gold)

Gold production for the fourth quarter of 2019 was above expectations with 1,439K Oz, up 10.2% sequentially. The company indicated a sound output for the JV called Nevada Gold Mines, which jumped to 585K Au Oz compared to 535 K Oz sequentially.

Gold price realized increased this quarter to a multi-year record of $1,481 per ounce.

All-in sustaining cost or AISC is still one of the lowest in the industry with about $915 per ounce in 4Q’19, which gave a $566 per ounce profit margin based on $1,481/ Oz for gold. I calculated AISC from:

A quarter-over-quarter decrease in gold total cash costs per ounce2 and all-in sustaining costs per ounce of approximately 1-3% and 6-8%, respectively is expected.

Below are the production details per mine and copper production from the three mines owned (100% or in part) by ex-Barrick Gold.

Copper production was 117M lbs (from three mines indicated below) in 4Q’19 or up 16.7% sequentially. 92 M lbs were sold.

Annual production of 5,465 k Au Oz topped the end of the guidance or 5.1 M oz-5.6 M oz at AISC of $870-$920 per ounce. Copper production was 432 M lbs, topping the range of 375-430 million pounds at AISC of $2.40-$2.90 per pound.

Conclusion And Technical Analysis

I consider Barrick Gold is an excellent proxy for gold at this stage of the game, and it is what I find very appealing. Production is under control with an outstanding pipeline portfolio, and the balance sheet is in great shape with lower net debt.

However, Barrick Gold is continuously involved with new claims and new headaches with its international assets. It was Acacia mine in Tanzania, and now it is Porgera in Papua New Guinea with water pollution. It is an ultimate weakness that we should always take into account.

Technical Analysis (short term)

GOLD experienced a support breakout early January. The stock reached lower support at about $17.20. The new resistance is the old support at $18.45 now.

The short-term strategy is to buy at or below $17.20 and selling a little at $18.45 or higher. However, it is too early to see a new pattern forming, and it would be wise to hold and wait for a new pattern to emerge.

If the gold price is showing some signs of weakness, I expect GOLD to retest support at $17.20 and could eventually drop to 16.00 (multi-bottom support). Conversely, if the gold price continues its positive momentum, then GOLD may cross $20.

In my opinion, without any news, the gold price is about to retrace to $1,485 per ounce range before resuming a healthy uptick at or above $1,575 per ounce.

Hence, watch gold like a hawk.

Author: Fun Trading

Source: Seeking Alpha: Barrick Gold: Strong Gold Production Is A Good Sign

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