Barrick’s rerating potential
Among senior gold miners (GDX), Barrick Gold (GOLD) has the highest forward EV-to-EBITDA (enterprise value-to-EBITDA) multiple of 8.2x. This multiple takes into account the inclusion of Randgold Resources. The combined company started trading on January 2 after the initial announcement of the merger on September 24.
Between the merger’s announcement on September 24 and January 2, GOLD’s valuation multiple rose 14% in anticipation of synergies, cost savings, and increased returns. After Barrick and Randgold’s merger completed on January 2, GOLD’s multiple rose 37% to reflect the combined entity’s value. The resolution of the company’s dispute with the Tanzanian government could be another major catalyst for its stock.
For more on Barrick’s upside potential, read Can Barrick’s Valuation Rerate Further after the Merger?
Newmont Mining (NEM) is trading very close to Barrick. It has an EV-to-EBITDA multiple of 8.1x, which is 2% lower than its five-year historical average. As we discussed in Could the Newmont-Goldcorp Merger Form ‘The Go-To Gold Equity’? on January 14, NEM and Goldcorp (GG) entered an agreement in which Newmont is to acquire all of Goldcorp’s outstanding shares. This merger has significant synergies, which could help the combined company command a premium after the merger. However, much of the outcome will depend on its post-merger project execution. Also, Newmont will need to assure the markets that it can turn around Goldcorp’s weaker assets or sell them for a reasonable price.
Kinross Gold’s lowest multiple
Kinross Gold (KGC) has the lowest forward multiple of 4.9x, which implies a discount of 30.0% to the peer average multiple. Although its discount started to fall as it addressed production growth concerns, geopolitical concerns weighed down the stock and its multiple in 2018. Moreover, if the recent Tasiast Expansion Phase Two issue isn’t resolved as soon as possible, the company could see further downside.