Barrick Gold: Lower Gold Production Is Expected In 4Q, Technical Issues (ABX:CA)

Introduction

Toronto-based Barrick Gold (NYSE:GOLD) released its third quarter 2023 results on November 2, 2023. This quarterly article updates my preceding article published on September 4, 2023. I have followed GOLD quarterly on Seeking Alpha since April 2015.

Note: The third quarter results come with the company’s presentation that you can access by clicking here.

Barrick Gold is one of the three gold miners that I view as my most important long-term “gold miners,” together with Newmont (NEM) and Agnico Eagle (AEM). Those three companies should undoubtedly be the first choice for the average investor looking to start a long-term investment in the gold market.

Agnico Eagle and Barrick Gold have not done as well as the VanEck Gold Miner ETF but are down only by a tiny margin. Newmont, on the other hand, has performed the worst thus far, declining more than 20% in a single year. As we can see from the data presented above, there has been a significant decline beginning in April 2023.

From roughly $1,200 per ounce in October 2018 to $1,984 per ounce today, gold prices have increased dramatically in the last several years, even though they’ve dropped slightly from their peak of $2,070.

This slight decline isn’t thought to be a long-term trend, and a rebound is anticipated in 2024 as the FED will likely declare a lengthy pause or eventually announce an interest cut late in H2 2024.

Unfortunately, since 2012, equities linked to the gold mining industry have mostly underperformed the price of gold, despite this positive trend. The reasons for the mining industry’s underperformance are a combination of several factors. However, applied to Barrick Gold, we can think of a few intrinsic reasons, one of which is particularly attached to the location of its assets.

The list of favorable jurisdictions has gotten smaller over the past ten years. Many jurisdictions in Asia, Africa, and Latin America are at risk. Political risks have resulted in a valuation reduction that is difficult to overcome for companies like Barrick Gold, whose output is particularly concentrated in very unpredictable locations.

Barrick, for instance, intends to restart operations at the Porgera mine in Papua New Guinea, which has been placed under care and maintenance since 2020 due to the nation’s refusal to renew the permits and renegotiate the agreement. Barrick is now the mine’s operator and has a 49 percent share.

A further component of Barrick’s holdings is the multibillion-dollar Reko Diq copper and gold mine project, situated in the volatile region of Baluchistan in Pakistan, which promised to be a risky endeavor. An estimated CapEx of $7 billion with a possible start in 2025 targeting first production in 2028. in 3Q23 Reko Diq feasibility study update is on track for completion by the end of 2024.

Reko Diq will rank among the world’s top 10 copper producers when it reaches full production, while the expanded Lumwana mine is forecast to produce at an annual production rate of 240,000 tonnes of contained copper.

One major strategic priority of the company is expanding its copper production. With the planned Lumwana development, 240K tons of contained copper are anticipated annually, and Reko Diq is expected to produce in 2028. Please for more information about the Reko Diq project read my recent article about the project by clicking here.

Thus, It is a crucial factor to consider when investing in Barrick Gold; investors who are reticent to invest in a significant-risk premium company would prefer investing in Agnico Eagle, which has a considerably safer asset portfolio. Please read my recent article on AEM by clicking here.

However, on the other hand, I believe 2024 will show a strong new correlation between the gold price and gold miners such as Barrick Gold and I recommend accumulating the stock regularly now.

CEO Mark Bristow explained clearly why the company’s strategy will be fruitful in the future. He said in the third quarter conference call:

That is why Barrick has a long-term vision of its future and a strategy which, as I will show you in the course of this presentation is organically designed to deliver value today and growth tomorrow by building real partnerships with our host countries and other key stakeholders.

3Q23 results snapshot and commentary

1: Balance sheet commentary

Barrick’s net earnings income increased from $241 million, or $0.14, in the same period last year to $368 million, or $0.21 per diluted share, in 3Q23. Revenue increased from $2,527 million in 3Q22 to $2,862 million in 3Q23.

With a third consecutive quarterly increase, the results exceeded analysts’ estimates and demonstrated that the company’s production is currently expanding. I was pleasantly surprised with the strength of Nevada’s mine production this quarter.

The trailing 12-month free cash flow was $414 million, while the free cash flow for the quarter increased to $359 million.

It was impressive progress with a jump in cash flow from operations to $1,127 million compared to $758 million last year. Higher gold prices and improved production output are beginning to pay off, as I predicted in my previous article.

As per the company’s dividend policy, Barrick Gold announced a $0.10 quarterly dividend per share in 3Q23. It offers a 2.56% dividend yield.

Finally, the debt situation is quite stable with $514 million in net debt and a Net debt to EBITDA of 0.15x. Net debt is down 16.7% quarter over quarter which is a sign of strength.

2: Gold and Copper Production

During the third quarter, 1,039K oz of gold (sold 1,027K oz) and 112 Mlbs of copper (sold 101 Mlbs) were produced at a price of $1,928/oz for gold.

While gold production climbed by 13% annually, copper production increased by 8.9%. The realized average price of copper was $3.78/lb, a 16.7% YoY decrease.

Unfortunately, the company indicated that it did not expect to meet the company’s gold production guidance due to the slower ramp-up of the Pueblo Viejo expansion. CEO Bristow said in the conference call:

But we did have some setbacks, notably, the slower ramp up of the expansion of Pueblo Viejo, our flagship organic growth project in the Dominican Republic. This is impacting on our ability to achieve our gold production guidance for the year, but as I have often said, mining is a long game and we don’t manage Barrick quarter-by-quarter.

The sequential gold production per mine shows significant quarterly gains, with the Randgold mines in Africa and the Nevada joint venture performing particularly well. Kibali, Cortez, and Turquoise Ridge all produced substantially higher gold quarter over quarter.

On the copper production side, the company delivered a solid quarter as well with 3Q23 copper production of 112 Million pounds.

Lumwana mine did particularly well with 72 M pounds up 7.5% quarter over quarter. The Lumwana feasibility study is on track for completion by the end of 2024.

The price of copper increased to $3.78 per pound this quarter.

Technical Analysis and Commentary

Note: The dividend is taken into account in the chart.

Gold forms a descending channel pattern, with resistance at $16.18 and support at $14.85. The RSI is now 52 and is insignificant enough to suggest a potential extended trend. The chart pattern is still descending, suggesting a short-term bearish trend. However, after a brief period of consolidation, it could mean a longer-term positive trend. Notice that the stock price retraced to the 50MA today, which frequently serves as a weak intermediate support.

It’s recommended to keep a core long-term holding and allocate roughly 40% to trade LIFO while you wait for a possible final breakthrough in 2024, assuming that gold prices rise to between $2,000 and $2,100 per ounce.

Selling between $16 and $16.40 is the recommended mid-term trading strategy; a higher resistance level at $16.90 might also be present. I recommend accumulating between $15.25 and $14.75, with a lower potential support at $14.25

As I said regularly, you should watch the gold price like a hawk.

Warning: The TA chart must be updated frequently to be relevant. The chart above has a possible validity of about a week or two. Remember, the TA chart is a tool only to help you adopt the right strategy. It is not a way to foresee the future. No one and nothing can.