Why Shares Of Barrick Gold Are Under Pressure Today?

Barrick Gold Video 18.02.21.

Barrick Gold Proposed A Special Dividend Of $0.42 Per Share

Shares of Barrick Gold are down by about 2% in today’s trading after the release of the company’s fourth-quarter earnings report.

Barrick Gold reported revenue of $3.28 billion and GAAP earnings of $0.39 per share, beating analyst estimates on earnings and missing them on revenue.

Barrick Gold maintained its quarterly dividend of $0.09 per share and proposed a special distribution worth $750 million, or $0.42 per share. The company explained that it had proceeds of $1.5 billion from the sale of non-core assets since 2019, and it decided to return half of this capital to shareholders.

Barrick Gold managed to deliver production and costs which were in line with its previous guidance despite the challenges posed by the coronavirus pandemic. However, the company’s solid financial performance in the third quarter failed to serve as a bullish catalyst today as traders remained focused on the recent gold price dynamics.

What’s Next For Barrick Gold?

While shares of Barrick Gold were gaining ground in premarket trading after the release of the quarterly report, they quickly lost momentum and found themselves under pressure together with shares of most gold miners.

Gold has recently managed to settle below the $1800 level which hurt market sentiment. The current market mood is bearish, and even the announcement of a special dividend did not provide enough support to the stock.

Gold miners have never attracted income-oriented investors as they were focused on developing mines rather than paying hefty dividends. As a result, the dividend yield of leading gold miners, including Barrick Gold, is low.

In this light, even a special dividend may not attract enough demand for the stock in case traders remain focused on the near-term dynamics of the gold price.

At the same time, the stock has entered into an attractive territory from a valuation point of view after it declined from the $30 level towards the $20 level. Currently, Barrick Gold is trading at less than 15 forward P/E which looks like a reasonable price for one of the biggest gold miners.

For a look at all of today’s economic events, check out our economic calendar.

3 Gold Stocks Ready to Glitter

After a record runup in gold prices during the first half of 2020, demand for the precious metal has eased in recent months amid a shift to risk-on plays and institutional investors diversifying into other inflationary-hedge assets, such as Bitcoin.

However, with central banks pumping enormous amounts of stimulus into the financial system, many analysts think the yellow metal will regain its luster as the greenback decreases in value.

“With record global debt and MMT in place, there is more certainty that it is about time that gold will reprice itself to account for dollar debasement. When faith in the modern monetary system is shaken, there is a tendency to shift towards hard assets, probably justifying why central banks across the globe have been net buyers of gold bullions since the Global Financial Crisis,” Edelweiss chief market strategist Sahil Kapoor told investors, per Kitco.

Let’s take a closer look at three large-cap gold mining stocks that closely track the commodity’s price. We’ll also use technical analysis to identify important trading levels.

Newmont Corporation

With a market capitalization nearing $50 billion, Newmont Corporation (NEM) is the world’s largest gold producer, with an annual consolidated output of around 6.39 million ounces. The gold miner, which has extensive operations in the Americas, Australia, and Africa, offers a 2.68% dividend yield and trades 32.53% higher over the past year but has eased 5% since early November.

From a charting perspective, look for entry points near support at $58.30 while targeting moves to overhead resistance at $68.50.

Barrick Gold Corporation

Toronto-based Barrick Gold Corporation (GOLD) has major mining operations in North America, South America, Australia, and Africa, with its assets significantly boosted in 2018 after its acquisition of Randgold. Last year, the company said it was on track to reach its annual gold production target of between 4.6 and 6 million ounces. The $39.56 billion Canadian-based gold miner yields 1.61% and has gained 21.31% over the past 12 months. Year to date (YTD), the shares have edged 1.8% lower.

Chart wise, look to buy the stock at current levels if support holds at the crucial $22.50 area. Consider booking profits on a move to technical resistance at $28.45.

Kinross Gold Corporation

Yielding 1.72%, Kinross Gold Corporation (KGC) explores for and produces gold in Canada, the United States, Russia, Brazil, Chile, Ghana, and Mauritania. The mining giant, which generates annual gold equivalent production of around 2.5 million ounces, received an upgrade from Barclays last month based on the company’s valuation relative to more diversified mining firms. Though Monday’s close, the gold miner currently trades at around eight times forward earnings, placing it at a significant discount to its historical earnings multiple of 37 times. Although the company’s stock has slipped nearly 5% YTD, it has jumped 40% over the last year.

From a technical standpoint, look for entries near key support at $7 while booking profits on retests of horizontal resistance at $9.30.

For a look at today’s earnings schedule, check out our earnings calendar.

U.S. Stocks Set To Open Higher As Traders Bet On Continuation Of The Upside Trend

U.S. – China Trade Deal Review Got Postponed

The review of the Phase 1 trade deal between the world’s biggest economies got postponed as the U.S. had reportedly decided to provide China with more time to increase purchases of U.S. goods.

Not surprisingly, the coronavirus pandemic put some pressure on the implementation of the first phase of the U.S. – China trade deal which remains a rare bright spot in the current relations between the two countries.

The delay of the review is a positive development for the markets since it shows that U.S. is not ready to put more pressure on China on the trade front.

Additional time will provide Beijing with a chance to boost purchases under the deal. As a result, the review of the Phase 1 deal will look more favorable and allow both parties to stay on course for the Phase 2 deal in case the political situation permits new negotiations.

S&P 500 futures are gaining some ground in premarket trading as traders believe that the trade deal between U.S. and China is not in danger for now.

More Pressure On Chinese Companies?

While the news on the trade deal front are favorable for China and the world economy, U.S. – China relations continue to trend down.

On Saturday, U.S. President Donald Trump stated that he may put pressure on more Chinese companies after he decided to ban TikTok unless it would sell its U.S. operations. China’s technology giant Alibaba is a possible target.

At this point, it looks like traders believe that U.S. will not act against other Chinese companies before the November elections so shares of Alibaba find themselves under limited pressure in premarket trading.

Berkshire Hathaway Buys Shares Of Barrick Gold

While gold and silver continue their rebound after the recent sell-off, gold and silver miners are set for a strong start of the week as Warren Buffet’s Berkshire Hathaway disclosed that it bought 20.9 million shares of Barrick Gold.

Miners’ shares have been under pressure during the recent sell-off but are set for increased trading activity after Berkshire’s move.

Berkshire’s position in a leading gold miner will increase investors’ confidence in the sector and attract new money into gold and silver miners.

For a look at all of today’s economic events, check out our economic calendar.

U.S. Stocks Set To Open Higher As Traders Shrug Off Virus Worries

World Health Organization Reports A Record Daily Increase In Coronavirus Cases

On Sunday, the World Health Organization reported 183,020 new coronavirus cases. Most of this cases (116,041) were located in the Americas region.

Meanwhile, Europe also has problems as coronavirus reproduction rate has rapidly increased in Germany while Bulgaria had to make wearing face masks compulsory again.

Despite the worrisome news, S&P 500 futures are pointing to a higher open as traders bet that the unprecedented monetary stimulus from the world central banks will continue to boost asset prices.

The risk-on mode is highlighted by the weakness of the U.S. dollar, which is declining against a broad basket of currencies. The U.S. Dollar Index failed to settle above 97.5 and pulled back below this level.

Oil Struggles To Settle Above $40

WTI oil continues its attempts to settle above the key resistance level at $40. A move above this level will likely lead to increased upside momentum and help most oil-related equities gain more ground, providing support to the whole market.

Oil supply is getting tighter due to oil production cuts while demand improves as economies lift virus containment measures. At the same time, oil traders are worried about the potential second wave of the virus and its implications for the travel industry which is an important source of oil demand.

A continuation of the current oil rally will have a positive impact on S&P 500 and could push it towards recent highs, so traders should closely watch oil price dynamics in the upcoming trading sessions.

Gold Tries To Get Above $1750

Gold may also have an impact on today’s trading session since it is trying to get above the key resistance level at $1750 on a spot basis.

Gold stocks like Barrick Gold and Newmont Mining have pulled back from their highs reached in May while gold is trying to get to new highs.

This situation creates a setup for increased demand for gold equities in case gold manages to settle above $1750 per ounce and continue its upside move after a period of consolidation.

For a look at all of today’s economic events, check out our economic calendar.

Barrick’s Gold Rush for Newmont

  • Barrick is the initiator of the transaction. Actually, this is not the first attempt by these companies to unite. If my memory serves me right, the latest attempt, an unsuccessful one, was made in 2014.
  • Barrick proposes to purchase Newmont’s shares at a discount to the market price. In particular, the merger would offer 2.5694 Barrick shares for each NEM share. Friday’s closing price is about $33.5, which implies a discount of 8% to the market price. Thus, the entire company is valued at $ 17.85 billion.
  • The birth of a giant. If the merger takes place, a real giant with a production volume of about 10 million ounces of gold and revenue of about $ 16 billion will appear in the market.

What do I think about this transaction? I am not an industry person so I will bring forth my arguments from an investor’s point of view.

First, the transaction is far from a given. I believe that Newmont is obviously undervalued. Barrick valued Newmont at an EV/EBITDA of 7, while the average of the sector is about 8.6, according to Bloomberg. According to the EV/Reserves and EV/Output multipliers (which are used to evaluate gold mining companies), the valuation of the company was done almost in accordance with market prices. Nevertheless, there is no premium for any multiplier. What are the benefits of Newmont shareholders? Moreover, it seems like this transaction is more important for Barrick than Newmont.

Secondly, if Newmont merges with Barrick, most probably, the merger with Goldcorp will not take place. As I understand, the process is already close to the final straight. Is the deal with Barrick worth sacrificing Goldcorp? I am not ready to answer this question at this point.

Thirdly, I believe that a huge hypothetical company carries high risks associated with corporate governance. It will not be easy to manage such a sockdolager.

$17.8 billion Barrick’s bid

I guess we should avoid drawing conclusions as to whether the transaction will take place or not and who will benefit more ahead of time. By the way, why not fantasize and imagine that Warren Buffett is standing behind the transaction. He could be trying to somehow get out of under after the fall of Kraft Heinz

Joking aside, shareholders of Newmont, in my opinion, must not be happy with this proposal, which makes me believe that the merger will not take place under the terms proposed. Moreover, I do not exclude that Newmont will sink a bit (many people have purchased shares against this transaction) in the event of cancellation, which will be a good opportunity to purchase shares at a discount.

The very fact of Barricks’ proposal confirms my arguments about the active process of consolidation in the sector. Judge for yourself. Gold mining is one of the most fragmented sectors in the global economy – two leaders and a whole bunch of medium and small-sized companies.

What do potential buyers seek? First of all, they check on the quality of assets, the size of reserves and resources, as well as the total cost of extracting one ounce of gold (all-in sustaining costs or AISC). In addition, a potential buyer will pay attention to the amount of debt, perspectives of operational performance, and profitability.

Will Barrick try to catch a smaller bird?

I have made a list of medium-sized companies, which, in my opinion, could be absorbed by larger ones. For example, if the purchase of Newmont fails, Barrick may well focus on some other smaller company. Moreover, we cannot rule out the factor of Newmont. Agnico, Newcrest, Anglogold, Kinross and, finally, our dear Polyus are also there.

Gold Companies

Barick Newmont Yamana Semafo IAMGOLD Endeavor Detour New GoldI have to stress once again that each of the companies above may become subject of acquisition in the foreseeable future. Each of these companies is quite promising in terms of production and revenue growth and is characterized by fairly high profitability. Besides, none of them has had a high level of debt (if the Net debt/EBITDA ratio is lower than 3, I believe there is nothing serious to worry about).

In terms of the current market valuation, I liked B2Gold, Centerra, and IAMGOLD. I think B2Gold had the most coherent valuation (taking into account one of the lowest AISC on the list; see chart). Centerra and IAMGOLD seem like the most undervalued.

I do not claim that these three companies will definitely become objects of acquisition in the near future. I am just pointing out their advantages.

The sector is in the process of intensive consolidation. Now all attention is paid to the possible transaction between Barrick and Newmont. After the transaction takes place (or fails), M&A processes may still continue in the sector. Or, the other way around. While the giants are arguing about how they should merge or whether they should unite at all, somebody may make a couple of deals on the sly…

A quite interesting period is awaiting the gold sector! I have my popcorn already.

The article was written by Evgeny Kogan, Ph.D., investment banker, the author of the telegram-channel Bitkogan.

Gold Producers – Buying Opportunity if the Reports Disappoint

As a matter of fact, Newmont is one of the world’s leading gold producers. After combining with Goldcorp, the volume of the company’s production will be about 7 million ounces. The Competition Bureau of Canada recently approved the deal, which is expected to be completed in the second quarter of this year.

Newmont NEM US ratios
While Newmont is getting ready to publish reports, let us discuss the market expectations. The quarterly report forecasts a slight increase in revenue and EBITDA and a decrease in net profit and EPS. If we compare changes from year on year, we can expect a more substantial decline. I believe that this is primarily due to the decline in gold production. Let us analyze how things will actually go. Guessing whether the market will hit the spot or not is quite a thankless job.

On the whole, I have a positive opinion on Newmont and Barrick Gold (GOLD US) and regard them as defensive assets. In terms of multipliers, they look about the same (Barrick is slightly more expensive). The difference is that the beta coefficient of Newmont is positive, while Barrick has a negative beta coefficient. Therefore, Barrick has had my preference for all seasons since it works better against the market.

Getting back to Newmont, I have to say that I don’t actually expect anything bad from the reports. If the results are lower than predicted (without force majeure), and the asset prices fall down, it will obviously be a good buying opportunity for a quality asset at a discount price, especially against the background of rising prices of gold. I expect that at this level some will enter the position, and those who already did, will increase it.

Anyway, let us wish good luck to everybody!

The article was written by Evgeny Kogan, Ph.D., investment banker, the author of the telegram-channel Bitkogan.

Global Funds in FAANGs Today, BANNGs Tomorrow?

BANNG = Barrick Gold, Agnico Eagle, Newmont Mining, Newcrest Mining, and Goldcorp. They are the collection of gold stocks that would appear in all the major gold stocks ETFs, major indices in their respective countries. They have the liquidity, market cap, dividends, along with being the group of some of the largest gold miners in the world. Barrick and Newmont are the largest gold miners in the world. Both FAANG and BANNG stocks are in a global equity fund managers MSCI ACWI Index (All Country World Index). But how in love are these global fund managers with FAANGs, and how despised are they with BANNGs?

This is the first-time investors can see how underweight Global Equity Funds are in gold’s BANNG’s stocks.

How Many Global Equity Funds Hold FAANGs & BANNGs?

When looking at the 270 Global Equity Funds, with ~480 billion in AUM, we have seen the number of funds owning FAANG’s risen from 1 in 2 (51.4%) to 7 in 10, but the number of funds holding FAANG’s has been drifting down since April 2017, when it was 72.38%, but not by much to 69% at the end of July 2018. They have been clearly selling into the rally as retail investors continue to hold on.

Global equity funds have been selling into a strength this year, building a larger underweight in FAANG and tech-related stocks. Some of that selling has been reallocated into Materials stocks but the gulf in ownership is still huge, this has further to go.Steve Holden, Founder at Copley Fund Research

This is in contrast to BANNGs today, where only 1 in 13 (7.7%) global equity fund managers have any exposure to the BANNG group. 1 in 3 funds held the BANNG’s during gold’s peak in 2011 and even held them well after gold peaked, 31.1% of global equity fund managers peaked in January 2012. The number of global fund managers didn’t start to reduce exposure until the second quarter of 2012, and more meaningful in the second half of 2012. This is almost one year after the gold price peaked.

FAANG vs BANNG

How Much Exposure Do Global Equity Funds Have to FAAANGs & BAANGs?

When we look at the funds with a global mandate, the average weight to the basket of FAANG’s has more than doubled from 2.0% to 4.6% since April 2011. But fund managers have held the line in keeping their FAANG exposure to no more than 4.5%. This is in contrast to BANNG’s that saw their exposure in global mandate funds fall by more than 90%, from a high of 0.061% to 0.068% at the low in 2013, and currently at 0.13%.

Let’s repeat that, Global equity fund managers only have an average weight of 0.13% allocation across ALL BANNGs. This presents a huge untapped opportunity for investors. Global Funds missed the runup in the gold price in the first half of 2018, as fund exposure continues to fall.

FANNG vs BANNG 2

How Many Funds Are Overweight FAANG’s & BANNG’s?

With all that exposure by global equity managers, only 29.2% of global equity funds were overweight FAANGs, down from a high in 2011, when more than 44.4% of global equity fund managers were overweight FAANGs, relative to the MSCI All-Country World Index. Interestingly, 7% of the global fund managers were overweight the BANNG STOCKS, down from a peak of 24.9% in February 2012.

FAANG vs BANNG 3

The Newmont Edge

If capital continues to flow into the US, Newmont Mining has an edge over the other BANNGs, because it is the only company that is in the S&P 500. No other BANNG will be able to do this unless they change to being domiciled to the U.S.

Over at Barrick, Executive Chairman John Thornton is taking a non-traditional approach to the gold sector, focusing on profits over production ounces. He is taking his non-mining background and focusing on creating a consistently profitable business, with the aim that many of the diversified miners have done. Mr. Thornton doesn’t have to follow the standard norms or practices as to what has been in the past, potentially setting up the company to outperform its peers as its taking an unconventional approach.

We think its welcomed. “(Thornton) doesn’t have the DNA of a mining manager, or a mining family industry executive” (National Post). We would counter, that the one thing counts for shareholders, and that is delivering shareholder performance over anything else. If he is able to deliver on earnings, the share price will follow.

Summary

The contrarian view over the next 2-3 years puts the odds in favor of BANNG’s outperforming FAANGs, as FAANGss come under political pressure, typically highlighting the end of a sector run. Global Equity Fund Managers are light on BANNG’s, so those positioned with a view over a 2-3 year time horizon will be able to capitalize on fund flows back into the sector.

Tech vs Gold

While governments are opening up to miners to expand in their countries to create jobs as we have seen in Canada, Brazil, and the United States, the Risk-Reward for fund managers presents an opportunity shift from FAANG’s to BANNG’s with better asymmetric opportunities. We think this is the beginning of BANNGs versus FAANGs as we see a sector rotation into materials and FAANGs comes under political pressure, a common occurrence at the end of a sector cycle.

This article was written by Paul Farrugia, BCom. Paul is the President & CEO of First Macro Capital. He helps his readers identify mining stocks to hold for the long-term. He provides a checklist to find winning gold and silver miner stocks and any commodity producer.