Barrick Gold operates the Kibali gold-mining joint venture in the Democratic Republic of the Congo. It is one of the largest gold mines in Africa and consists of open pit and underground operations.
Courtesy of Barrick
Blame it on Bitcoin’s growing acceptance as an alternative asset class or on higher Treasury rates, but gold has lost some of its luster.
The metal has declined 9%, to $1,726 a troy ounce, in 2021, leaving it 16% below its record high of $2,063, reached last August.
With the selloff, gold looks attractive—and so does mining giant Barrick Gold (ticker: GOLD). Shares of Barrick, at about $20, are down by over a third from their summer peak and look inexpensive, changing hands for 15 times projected 2021 earnings of $1.33 a share and yielding 1.8%.
Barrick and other large gold-mining companies are trading cheaply, relative to their histories and to gold, even though they are better run than ever before. Led by South African geologist and big-game hunter Mark Bristow, Barrick has an impressive portfolio of mines.
There are 13 top gold mines in the world with projected annual production of 500,000 ounces for 10 years and with below-average costs, Bristow tells Barron’s in an interview—and Barrick owns or has interests in six of them. That includes three in Nevada, two in Africa, and one in the Dominican Republic.
“We have the industry’s best assets and strongest balance sheet, with no net debt and the best people,” the CEO says. Barrick projects annual gold production of 4.5 million to five million ounces over the current decade, while offering some exposure to the hot copper market.
Larry Pitkowsky, manager of the GoodHaven mutual fund, a Barrick shareholder, is a believer. “Bristow is our kind of 24/7 manager and has skin in the game,” he says. Last year, amid the pandemic, Bristow visited each of the company’s mines three times.
Barrick is “starting to return more cash to shareholders, and the stock is attractively priced, relative to free cash flow,” Pitkowsky adds. This year’s free-cash-flow yield is projected to be close to 10%.
While higher Treasury rates have diminished the appeal of gold, the backdrop still looks favorable.
“Gold is an investment to hold in these times of unknowns,” Bristow says, “and copper is rapidly becoming the most strategic metal in the world” as the pace of electrification picks up.
Fred Hickey, editor of the High-Tech Strategist newsletter, says that Democratic control in Washington is bullish for gold. “No limits on their spending, leading to gigantic deficits (good for gold), more Fed monetization (debasement good for gold), and inflation (great for gold),” he tweeted this past week, noting parallels to the 1970s, when the precious metal went up 20-fold. He sees gold getting back to its August 2020 peak.
Most investors have little or no exposure to the metal or to goldmining stocks. Despite Bitcoin’s rise, gold remains the time-tested alternative investment. To add it to your portfolio ahead of a revival in its price, there might be no better bet than one on Barrick and its swashbuckling leader.
Bristow ran Randgold Resources, a South African miner that generated ample returns for more than 20 years. He then merged it with the larger, Toronto-based Barrick in early 2019 and became CEO. That same year, he went after archrival Newmont (NEM) with a hostile takeover bid. The offer was withdrawn when the two companies agreed to merge their valuable mining operations in Nevada. Barrick is the lead partner, with a 61.5% stake.
Barrick’s stock lagged behind Newmont’s by 25 percentage points in the past year. Bristow questions Barrick’s lower valuation relative to Newmont, saying, “We have better-quality assets and are trading at a discount.”
Why has Barrick trailed rivals? Newmont, the only gold company in the S&P 500 index, pays a higher dividend—3.6%—based on a formula that ties its payout to gold prices.
Some investors are disappointed that Barrick has not come up with a similar dividend formula. It pays nine cents a share quarterly and plans to issue a special dividend of about 42 cents a share this year from the proceeds of asset sales in 2020.
Then there is Bristow’s interest in buying gold or copper companies, which has unsettled investors who fear that Barrick will overpay.
The CEO rebuffs such concerns. “Look at our merger-and-acquisition history and we haven’t screwed up once—I’m talking about me and my team,” he says, ticking off deals at Randgold, the Barrick merger, and the Newmont joint venture. “ I act like an owner because I am a big owner,” he says, noting that he holds over five million shares.
As a well-run gold-mining company, Barrick can be a hedge against financial turmoil. That’s an alluring find.
Write to Andrew Bary at [email protected]
