Barrick Gold Corporation (NYSE: GOLD), one of the world’s largest gold mining companies, has had a rough few years, significantly underperforming both the price of gold and its mining stock peers.
However, there are signs GOLD may finally be ready for a breakout after this extended slump. Here’s why Barrick’s fortunes could be turning around at just the right time to benefit from several supportive macro tailwinds.
Strengthened Balance Sheet Provides Flexibility
A primary reason for Barrick’s woeful underperformance between 2011-2018 was its extremely overleveraged balance sheet. The company took on massive debt loads to acquire overpriced assets near the peak of the mining cycle last decade.
This debt burden weighed heavily on Barrick’s stock and severely constrained its operational flexibility. However, under CEO Mark Bristow, who took over in 2019, Barrick has made major strides in cleaning up its balance sheet.
The company reduced net debt by $5.13 billion in 2021, bringing the total reduction over the past three years to a massive $7.4 billion. This restored Barrick’s net debt to EBITDA ratio back to a healthy 1.1x, down from 2.5x when Bristow took the reins.
With interest expenses slashed and operating cash flows redirected from debt repayment into growth initiatives, Barrick now has vastly improved flexibility to invest in developing new mines and expanding existing ones.
Increasing Copper Exposure Adds Growth Potential
Another aspect of the “new Barrick” under Bristow is an increased focus on copper production, which aligns with bullish copper market fundamentals.
Demand for copper is expected to surge over the next decade driven by the global electrification and renewable energy trends. Electric vehicles contain 3-4x more copper than internal combustion engine vehicles. The push towards wind, solar, and battery storage also requires substantial copper.
To leverage this upcoming copper bull market, Barrick has been strategically adding copper assets to its portfolio through the $1.4 billion acquisition of Lumwana in Zambia and the massive $7.4 billion merger with Randgold Resources in 2018 which added copper mines in the DRC.
Barrick now gets ~15% of its revenue from copper production, up from virtually zero before these deals. As this percentage grows over time, Barrick should benefit from copper potentially entering a new supercycle period of elevated prices.
The Gold Bull Market is Just Getting Started
In addition to growing its copper exposure, Barrick still generates ~85% of revenue from gold mining. This heavy precious metals exposure means the company is positioned to capitalize on what appears to be the early stages of a new gold bull market.
After topping out around $2,075/oz in mid-2020, gold prices corrected back down to ~$1,675/oz over the next 18 months. However, it now looks like this pullback has run its course.
Gold has found a bottom above $1,600/oz and has started to rebound over the past few months. Several supportive macro drivers suggest this nascent uptrend has room to run over the next few years.
Central banks around the world have again turned into aggressive net purchasers of gold, seeking to diversify away from USD reserves. Geopolitical tensions including the Ukraine war also increase gold’s safe haven appeal.
And with the Fed potentially nearing the end of its rate hike cycle as inflation shows signs of peaking, real interest rates seem unlikely to rise much further. This reduces the opportunity cost of holding non-yielding gold.
Overall, the macro backdrop looks quite favorable for gold prices to retest their all-time highs by mid-decade. This would provide a powerful tailwind to boost Barrick’s earnings and cash flows.
Trades at a Substantial Discount to Peers
Despite these positive developments fundamentally turning around the Barrick story, the stock continues to trade at a striking valuation discount to its largest peers and the broader gold mining sector.
For example, at its recent stock price near $18 per share, GOLD has a P/E ratio of 14.8x and trades at 2.4x book value. Compare this to senior gold miner Agnico Eagle Mines (AEM), which sports a P/E of 25x and P/B of 2.8x. GOLD also trades at just 6.5x EBITDA, a huge 40% discount to AEM and 25% below the senior gold miners ETF (GDX).
This steep valuation discount is likely due to the overhang of Barrick’s previous management missteps last decade. However, with its balance sheet repaired and operations optimized, the new Barrick led by CEO Bristow deserves a valuation in-line with sector leaders.
After years of disappointing investors, Barrick Gold finally looks ready for a rebound. Its much-improved financial standing, rising copper exposure, and supportive gold market backdrop provide the ingredients for potentially substantial share price upside.
While risks always exist in the volatile mining sector, GOLD offers a highly attractive risk/reward profile at current levels. The stock seems poised for a sustained breakout and should be considered a top mining pick for 2024.