This large gold miner offers you a great way to prosper from strong gold prices during coronavirus uncertainty and beyond. That economic volatility should significantly boost demand for gold as an investment, especially if huge government stimulus spending across the world spurs inflation.
That’s likely to send more investors looking for the “safe harbour” of gold, especially when this firm’s revenue rose 8.6% in the quarter ended March 31 and it continues to hike dividend payouts.
BARRICK GOLD (Toronto symbol ABX; www.barrick.com) lets you tap the second-largest gold producer in the world after Newmont (symbol NEM on New York). Altogether, the company has mining operations and projects in 15 countries.
In July 2019, Nevada Gold Mines, a joint venture with rival Newmont Corp., began its operations. Barrick owns 61.5% and is the operator. Newmont holds the remaining 38.5%.
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The new firm combined their assets in Nevada to create the world’s single-largest gold-producing complex. Three of these mines are already Tier One gold mines and the Goldrush-Fourmile project has the potential to become the fourth. A Tier One gold asset is a mine that will produce at least 500,000 ounces of gold for at least 10 more years and has a total cash cost within the bottom half of the industry’s cash cost-curve.
Barrick reported that in its first year of combined operations, Nevada Gold Mines not only met the production and cost targets set out at the start of the joint venture, but did so despite COVID-19 slowdowns.
By eliminating duplicate processing and other operations, the partners are on target to cut an average of $500 million annually from their costs within five years. This includes removing the fences that had previously separated geologically connected assets, mines and projects. By doing this, the properties have been combined into larger and more efficient operations.
In the quarter ended March 31, 2021, revenue rose 8.6%, to $2.96 billion from $2.72 billion. Excluding one-time items, earnings reached $0.29 a share in the latest quarter—up 81.3% from $0.16. The main reason for the gains, apart from the higher sales, was 11.8% higher realized gold prices.
Some of Barrick’s assets are in less-stable regions, carrying a higher risk of disruption; however, the company has a large and diversified portfolio. That—plus its big presence in mining-friendly Nevada—lowers your investment risk. It also supports Barrick’s strong appeal given its low production costs and the rising demand for gold investment.
The outlook for the company remains strong, given its solid balance sheet and strong cash flow from its gold business. Its smaller but lucrative copper business is contributing about 20% of earnings given the current strength in copper demand.
There are about 13 top-tier gold mines in the world with below-industry average costs and a projected annual production of 500,000 ounces for 10 years. Barrick owns or has interests in six of them, including three in Nevada, two in Africa, and one in the Dominican Republic.
The company now projects annual gold production of between 4.5 million and 5 million ounces during the current decade. Meanwhile, it plans to keep acquiring what it sees as world-class copper assets to expand its output.
Meanwhile, the company continues to use its strong cash flow to reward investors: starting with the December 2020 payment, it raised its quarterly dividend by 12.5%, to $0.09 U.S. from $0.08 U.S. The new annual rate of $0.36 U.S. yields 1.7%. Note that the latest dividend increase comes just after Barrick raised its quarterly dividend by 14.3% with the September 2020 payment.
Barrick says that its current quarterly dividend of $0.09 U.S. is sustainable, even if gold prices, currently around $1,789 U.S. an ounce, decline to $1,200 U.S.
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