The 2 Best-Positioned Gold Miners? Barrick and Newmont

04/08/2020 5:00 am EST

Focus: COMMODITIES

Michael Cintolo

Vice President of Investments and Chief Analyst, Cabot Heritage Corporation

With COVID-19, plunging oil prices, credit/health worries and central bank printing, it’s a time of maximum uncertainty — and such uncertainty plays right into the hands of gold, which has popped back toward multi-year highs, notes Mike Cintolo, editor of Cabot Top Ten Trader.

Barrick Gold (GOLD), the world’s second-largest gold mining company, is well positioned to benefit from this strength. The metal’s improving fortunes even before the virus allowed the company to deliver a huge earnings surprise in Q4, and revenue, net income and free cash flow have seen impressive upward trends since bottoming in 2018.

Barrick forecasts all-in sustaining costs, a key metric for miners, at $945 per ounce this year, miles below current prices, giving the firm plenty of room to take on additional projects. (Analysts see sales and earnings up 12% and 33% (respectively) in 2020.)

The company is disposing of non-core assets, rapidly paring its long-term debt (halved in 2019) and has announced a 10-year plan to become the world’s most valued bullion company, focusing on steady production and gushing free cash flow. The wind is certainly at Barrick’s back today. If you want to play gold, then GOLD looks like the one of the best options.

Newmont (NEM) isn’t as much a growth story as a free cash flow behemoth — the company is the largest gold producer in the world (thanks in part to its acquisition of Goldcorp in early 2019), cranking out north of six million ounces last year mostly via eight top-producing mines (and two more that are ramping up).

Thanks to debt reduction and cost cuts (all-in sustaining costs south $900 per ounce this year), the firm believes it will produce more than $2 billion annually of free cash flow if gold stays at $1,500 per ounce, and that figure will rise (or fall) $400 million annually for every $100 increase (decrease) in gold.

With that outlook, Newmont is hiking its dividend ($1 per share annually; 2.1% yield) and buying back shares, and there could be more of that on the way if all goes well.

Of course, should precious metal prices collapse, all bets are off, but the fundamentals (worldwide money printing, uncertainty) look bullish in the months ahead. As gold stocks go, Newmont and Barrick appear to be the two best positioned.

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