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The Valuation Gap between Barrick Gold and Newmont Mining

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Apr. 9 2018, Updated 9:30 a.m. ET

Relative valuation

In this final article of the series, let’s look at the respective relative valuations for Barrick Gold (ABX) and Newmont Mining (NEM). This information could help investors gauge the relative attractiveness of each stock in relation to their current prices and prospects.

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Newmont Mining’s higher valuation

Newmont is currently trading at a forward EV-to-EBITDA[1. enterprise value to earnings before interest, tax, depreciation, and amortization] multiple of 8.5x. The company has seen significant improvement in this multiple compared to the multiples of its peers.

This improvement most likely resulted from its relatively strong operational performance in 2017 and in 2018 year-to-date. NEM is also trading at a 13.7% premium to its trailing-five-year average multiple and at a 27.5% premium to the senior gold miners’ (GDX) peer average.

Among the senior miners, including Kinross Gold (KGC) and Goldcorp (GG) are trading at forward multiples of 4.6x and 7.8x, respectively.

Barrick Gold’s lower multiple

Barrick Gold’s (ABX) higher financial leverage is still a concern for investors, and the recent issues at its Tanzanian mines have added to the pressure. ABX is trading at a forward multiple of 5.6x, which reflects a discount of 15.3% to its peers and 14.4% to its average trailing-five-year multiple. Analysts have pared back their estimates for the company.

Barrick Gold has a lower multiple despite its higher one-year forward EBITDA margin of 46.4%, compared to 35.5% for Newmont Mining. Barrick Gold’s lower costs are responsible for this higher margin.

Despite this scenario, analysts seem to be favoring Newmont Mining due to its robust project pipeline, well-defined growth path, and more effective debt reduction management. Barrick Gold’s valuation, on the other hand, is suffering due to its mine-specific issues and its less-than-robust production growth pipeline.

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