Barrick Gold (GOLD) is the world’s second largest gold producer. It has been transformed since it merged with Randgold and the latter’s Dr. Mark Bristow took over as CEO, asserts Adrian Day, money manager and editor of Global Analyst.

Today, it is not only one of the largest gold miners, but one of the best and one of the most undervalued. Bristow is a dynamo. In his less than two years at the helm, Bristow dramatically cut the company’s debt; cut costs including slashing the bloated Toronto corporate headquarters and made mine operations more efficient.

He has also visited every one of the company’s operations around the world; resolved political problems in Tanzania and Papua New Guinea; and achieved the decades-old goal of combining Barrick’s and Newmont’s Nevada operations, cutting duplicative overhead.

The result is a company focused on “profitable ounces” instead of growth, with a strong balance sheet. Barrick always had world-class assets, including gold and copper assets in 13 countries primarily in North and South America, the Caribbean, and Africa.

It has several development projects in the same jurisdictions, with 71 million ounces of gold reserves. Barrick uses the conservative $1,500 an ounce to determine reserves. 

Production of both gold and copper has increased, both this year and last. With a meaningful decline in capital expenditures  of about 30% over the next four years, Barrick is forecasting modestly rising production around the 5 million ounce-equivalent level, with more than half of that coming from mines in North America.

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All-in sustaining costs are in the mid $900s, down from over $1,000 an ounce.  With lower costs and higher gold prices, Barrick’s margin has expanded from $694 in the second quarter to $940 in the third quarter.  

One of the most significant improvements has been in the balance sheet, with net debt down to around $1 billion, and around $4 billion in cash. The company is in its best financial shape in well over a decade. In 2012, the company had almost $12 billion of net debt.

The biggest change is in the culture. The stock has responded to Mark Bristow’s leadership moving from lows in the $10 range in late 2018.

It is trading at a price-to-cash flow multiple under 9 times, and free cash flow multiple of 15 times. It is trading just under 1.8 times book. These multiples are lower than most other major gold miners.

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