Barrick Gold (GOLD) — our Top Pick for conservative investors in 2023 — is the second-largest gold mining company in the world, and arguably the best positioned for long-term growth, suggests Adrian Day, a leading resource sector expert and editor of Global Analyst.
The modern Barrick was formed from the merger four years ago with Africa-focused Randgold, bringing with it the latter’s founder Dr. Mark Bristow who serves as Barrick’s CEO and the face of the company. Bristow is a dynamo who has worked to streamline the lumbering company, improve mine operations, reduce costs and cut debt, as well as fix a series of legacy problems in countries from the Congo to Papua New Guinea.
Although production has decline from 5.4 million ounces in the first year of the combined company to 4.4 million last, this has been part of a deliberate program to sell non-core assets and focus on profitability.
The most impressive achievement since Bristow took over is in the company’s balance sheet. From $6.3 billion in net at the time of the merger, Barrick is now net cash positive and is steadily paying off its remaining long-term debt. This year is has bought back 1% of its shares outstanding, and together with its industry-beating dividend, has returned $1.2 billion to shareholders. The current yield is over 4%.
In addition to core mines in Nevada, Barrick has multiple large-scale organic opportunities including an extension at its Pueblo Viejo mine in the Dominican Republic; the restart of Porgera in Papua New Guinea; and a new multi-generational copper mine in Pakistan. It has been a very disciplined player in the M&A space.
The biggest knock on Barrick is its political risk profile, arguably higher risk than its largest competitor, Newmont (NEM), and other large miners. One might argue that Barrick mitigates the risk through diversification; but it is also true that the company has demonstrated a solid ability to work with local jurisdictions, acting in a fair manner that revolves ultimately to the benefit of the company.
And the stock is undervalued, trading at 18 times earnings, at 1.2 times book, and at a price-to-free cash flow multiple of only 12. This is a lower valuation with the other large miners, and low relative to its own history. Indeed, other than the last quarter of 2015, this is virtually the lowest multiple in 20 years. When interest returns to the sector, Barrick with be a beneficiary.