Some of the biggest tech companies like Microsoft (NASDAQ:MSFT), Netflix (NASDAQ:NFLX) and Amazon (NASDAQ:AMZN) have fared quite well, despite the volatility in the markets. But interestingly enough, so have the gold miners. Just look at Barrick Gold (NYSE:GOLD) stock. For the year so far, shares are up about 45%.
So what now? Well, on Wednesday, the company will report its first-quarter results. Wall Street’s consensus is for earnings per share to come in at 16 cents, compared to 11 cents in the same period a year ago. As for revenues, analysts expect $2.8 billion, up 32.5% on a year-over-year basis.
Wall Street got a glimpse of the current quarter when Barrick provided preliminary estimates in mid-April. The company announced that it sold 1.2 million ounces of gold in the first quarter, along with 110 million pounds of copper. From the press release:
“President and Chief Executive Mark Bristow said these results positioned Barrick well to achieve its guidance for the year despite the impact of the global Covid-19 pandemic and the resultant lockdowns.”
So in light of all this, it should be no surprise that GOLD stock has had a standout year. It certainly helps that the company has taken swift action to deal with the impact of the novel coronavirus. Some of Barrick’s initiatives include financial support to various countries that have mining operations and emergency response measures across the sites.
The Long View
Barrick has gone through major changes over the years — and the company really had little choice. Let’s face it, the stock had generally been a laggard. For the past decade, the annual average return was actually a loss of roughly 4%. Over the past 15 years, the average return was just 2.3%.
As a result, Barrick has been focused on reducing costs and divesting non-core or underperforming units. It has also made more investments in digital technologies, such as for autonomous systems, to help increase productivity.
Yet the key move for GOLD stock was the merger with Randgold Resources, which was completed in early 2019. For the most part, the deal was spot-on. There were not only significant cost synergies but Barrick was able to bolster its platform. Note that it now has five of the industry’s top Tier One gold assets, like Cortez and Goldstrike in Nevada and Loulo-Gounkoto in Mali.
So when looking at its best year, Barrick has been able to boost its margins nicely and reduce the debt load, to the lowest level since 2007. There has also been a jump in free cash flows from $365 million to $1.1 billion.
Bottom Line on GOLD Stock
Even with all the restructuring, Barrick’s results are still largely tied to the prices of the commodities it mines. True, the copper business has been light, especially with the fall of the global economy. But gold should more than offset the drag.
Note that Bank of America analyst Michael Widmer recently announced his forecast that gold will hit $3,000 an ounce within the next 18 months. In fact, in his commentary he notes “The Fed can’t print gold.”
But governments across the world are printing lots of paper currency. And this could create a global inflationary environment. What’s more, the production levels for gold will likely remain fairly stable.
So all in all, GOLD stock should continue to benefit. The company is in strong financial shape, has a large base of reserves because of its high-quality assets and it should benefit from strong operating leverage. In other words, Barrick is certainly a good option for playing the bull case on gold.
Tom Taulli (@ttaulli) is the author of various books on investing and technology, including Artificial Intelligence Basics, High-Profit IPO Strategies and All About Short Selling. He is also the founder of WebIPO, which was one of the first platforms for public offerings during the 1990s. As of this writing, he did not hold a position in any of the aforementioned securities.
