Adrian Day is a leading expert on global resources, with a particular focus on precious metals mining companies. In his Global Analyst newsletter, he reviews a trio of buy-rated stocks that have recently reported quarterly earnings.
Barrick Gold (GOLD) reported results in line with expectations, though free cash flows were weak.The company had pre-announced production, as well as overall costs.
The weaker-than-expected free cash flows reduced the net cash balance and therefore the dividend, part of which is based on the company’s excess cash balance, to 15 cents rather than last quarter’s 20 cents.
The stock price decline appears grossly overdone and is as much a reflection of investor concern about the gold market, and general concerns about the increase in costs at large miners, than Barrick in particular.
CEO Mark Bristow said the company was on track to meet annual guidance, at the low end of the range for gold, and mid-range for copper. He emphasized that the company was pursuing organic growth, even though it continues to look at M&A opportunities, adding that those that meet the company’s investment criteria remain “few and far between”.
Barrick has several large-scale organic opportunities, including the Pueblo Viejo expansion, the restart of Porgera, and the new Reko Diq copper project in Pakistan.
The company expects to increase reserves, net of depletion, at year end. So far this year, it has bought back 1% of its shares outstanding, and, together with dividends, has returned over $1.2 billion to shareholders.
Bristow said the company would buy its own shares when they were materially below intrinsic value, and in comments he was almost chomping at the bit to start buying shares again, “more, significantly more”. We should join him; buy.
Wheaton Precious Metals (WPM) saw sales somewhat down, partly a reflection of two modest streams terminated during the quarter, and partly a matter of timing of sales.
Ongoing bottlenecks affected sales, though these are being cleared up. One major positive was the report that the phase III at Vale’s Salobo mine in Brazil is now 98% complete. Other development projects appear on track, while a handful of new mines are scheduled to begin construction in 2023.
Given that the last two quarters saw weak results at Salobo, which is Wheaton’s largest single asset, there had been concern that the expansion was being delayed. The company has nearly half a billion in cash, no debt, and $2 billion on an unused line of credit. A strong multi-year growth profile, rock-solid balance sheet, and conservative management make Wheaton a top pick.
Royal Gold (RGLD) had pre-released sales, which showed a minor miss of estimates largely due to a weak quarter at the Cortez in Nevada. The company is on track for strong end of year. Access to high-grade ore at that mine is now expected this quarter, and will help Royal with a strong end to the year.
The company is maintaining is full-year guidance. This quarter is also expected to include first royalties from its new Cortez royalty, which were not factored into the company’s full-year estimates.
Note that Royal has two royalties on Cortez. In addition, the Khoemacau copper mine in Botswana, on which Royal has a silver stream, expects to have completed its ramp up by the end of this year or early next.
Most importantly, the mine life of oft-troubled Mount Milligan, Royal’s largest asset, has been extended another four years to 2033. Average annual production is projected at 175,000 oz of gold and 68 million lbs of copper. Royal has streams on both metals.
Royal has $122 million cash and about $550 million available on its credit facility after paying down another $50 million during the quarter. It intends to pay down debt further from ongoing cash flow. Royal has some quality assets and near-term growth. It is a buy at this price.