This past week, most of the resource companies on our list reported quarterly financials. Broadly, results were good though not spectacular, with continued struggles to contain costs. Margins were very strong, and most companies reported good cash flow numbers. Meanwhile, Barrick Gold Corp. (GOLD) remains very undervalued on an asset basis, advises Adrian Day, editor of Global Analyst.
As always, mining remains a difficult enterprise. Any company with several mines will often have a problem at one or more, be it a voracious government, an equipment failure, or delay in spare parts. This quarter was no different.
Barrick Gold Corp. (GOLD)
Barrick reported financial results as expected, after pre-releasing production. Gold output missed estimates for the 11th straight quarter. However, the company continues to maintain its full-year guidance, albeit with gold production at the lower end.
Since the beginning of the year, Barrick has been saying that it expects a strong fourth quarter, and it will have to be very strong to meet guidance. With both Pueblo Viejo and Nevada Gold Mines continuing to improve, Barrick could get there, and of course higher production will mean lower costs per ounce.
Barrick reduced its debt by 27% during the quarter. It also repurchased $95 million of shares, a departure for Barrick. This underscores both the strong cash flow as well as CEO Mark Bristow’s frustration with the low stock price. The company expects to replace its reserves at year end.
Barrick has world-class assets and some very large assets in the pipeline, most of which have been generated organically. It is a strong operator, and CEO Mark Bristow is a dynamo. However, many of the company’s mines are in high-risk jurisdictions, and much energy at the top is devoted to putting out the constant fires.
Barrick’s shares have barely moved this year, while the XAU index is up 25%. In addition to the high political risk, investors are punishing the company for its repeatedly optimistic guidance. However, Barrick remains very undervalued on an asset basis, even accounting for the political risk. It is trading at close to its lowest price-to-NAV in its history – and is a good buy here.
Recommended Action: Buy GOLD.
