Could 2020 Be Even Better for Barrick Gold?


Dec. 13 2019, Updated 10:22 a.m. ET

The world’s second-largest gold miner, Barrick Gold (GOLD) seems well-placed going into 2020. With higher gold prices expected next year and recent upbeat remarks by the CEO, investors could be optimistic. Gold prices have also been up this year, which could bode well for the company. GOLD stock is up almost 30% so far this year, outperforming its peers. Newmont Goldcorp (NEM) stock has surged 24% year-to-date.

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Barrick Gold: A better 2020?

According to a December 12 Bloomberg report, Barrick Gold CEO Mark Bristow said, “Barrick, by end of next year, or during next year, will be net debt zero.” He continued, “We’ve definitely got the firepower to build a mine or to support a transaction. We don’t need any external support, for any of our ambitions, as we stand today.” According to the report, its ambitions might include a merger with Freeport-McMoRan (FCX).

Phoenix-based Freeport-McMoRan is one of the largest copper and gold miners. Freeport is currently valued at a market capitalization of $19 billion, while Barrick Gold has a market cap of $31 billion.

Goldman Sachs positive on gold prices

Goldman Sachs expects gold prices to jump 9% to $1,600 per ounce by the end of March 2020, Business Insider reported on December 9. Several factors could support higher gold prices next year, including political uncertainty, recession fears, and central banks’ gold buying. Investors generally switch to safe-haven asset classes amid broader market volatility.

Slowdown fears are intensifying, which could lead to a recession. China’s slowdown, led by its trade war with the US, might further fuel broad market uncertainty. Although the US reached a partial trade deal with China, a concrete solution on these trade disputes still seems far off. Increasing geopolitical tensions could continue pushing investors to safe havens, benefiting gold. Also, lower interest rates and a weaker dollar could boost gold prices.

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We expect Barrick Gold stock to trend higher, mainly due to its correlation with gold prices. So far in 2019, Barrick Gold and Newmont have exhibited a positive correlation of approximately 0.6 with gold prices. A correlation coefficient of 1 indicates a strong positive correlation, and -1 indicates a strong negative correlation.

The Market Vectors Gold Miners ETF (GDX) has been up more than 30% so far this year. Barrick Gold and Newmont make up approximately 11% each in GDX. Want to learn more about investing in gold? Check out The World’s Top Gold-Producing Countries.

Barrick Gold: Improving earnings and debt profile

Notably, higher gold prices could boost gold producers’ earnings next year. Gold prices were 20% higher in Q3 2019 compared to Q3 2018, which supported Barrick Gold’s earnings. Its EPS during the quarter increased by 88% YoY.

Barrick Gold has been focusing on its asset sales for the last several months. It recently sold a 90% interest in the Massawa project in Senegal for $430 million. Last month, it sold a 50% interest in Kalgoorlie Consolidated Gold Mines in Western Australia to Saracen Mineral Holdings for $750 million.

The company appears to be on track with strengthening its balance sheet over the last few quarters. At the end of the third quarter, Barrick Gold’s net debt was $3.1 billion. Its net-debt-to-EBITDA ratio was 1.2x, lower than its three-year average. Its net debt has been falling for the last several quarters.

Newmont Goldcorp’s (NEM) net-debt-to-EBITDA ratio was close to 2x at the end of Q3 2019. The net-debt-to-EBITDA ratio indicates how many years a company would need to repay its debt, with the EBITDA keeping both constant.


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