- LallicPartners
Analysis on Barrick Gold
Author: Koki Mashita | Editor: Nichola Monroe | Updated August 27th 2020
History of Barrick Gold
Barrick Gold is a gold mining company, highly disciplined in discovering and managing gold as assets. Not only do they discover gold, but they own gold and copper, allowing the stock price fluctuations to fluctuate with gold prices. Gold operations require a significantly good management team that understands how to keep growing their assets even in times of hardship. Investing in a gold mining company instead of gold itself, means investing towards the growth of a company whose profits correlate on gold prices. Barrick Gold is managed by Mark Bistrow who has been the CEO of Randgold Resources since 1995. According to their Q2 report, they have sustained solid operating performance and production even during COVID-19. They even declared a dividend on August 10th.
Outlook on Gold prices itself
Gold and silver have been closely watched since the start of the economic turndown, where sophisticated investors seek alternative forms of investments due to volatile, uncertain markets, and debt instruments appearing less attractive due to the FED’s Quantitative Easing, and its other measures. Additionally, gold has been extremely attractive to investors since the excessive printing of money by the Federal Reserve is predicted to devalue the dollar compared to other currencies. A possible solution for the FED to handle inflation measures is to propose a strategy known as flexible average inflation targeting, where the FED allows higher inflation to make up for the past years of missed inflation targets. However, Powell’s plans will be released on Thursday at the Jackson Hole meeting. The dollar already started to weaken against the yen. This already has caused gold prices to skyrocket, as a way to hedge against inflation of the dollar and a way to store money during a financial crisis.
In terms of technical analysis, the relative price is not overbought or oversold with an indicator of an upside breakout.
Bollinger Bands analysis - When taking a look at the bands, it shows that the bands have clearly been a resistance line and somewhat of a support line. Currently, it sits in the middle with potential but not the best time due to the possibility of going down lower to the support. However, you can’t time prices perfectly and may miss a breakout.
MACD analysis - After the 12th day crossed under recently for a short period, it seems that it will cross over again in the near future, suggesting an downside movement.
MA Cross analysis - The golden cross has occurred just recently indicated by the 9th day and the 26th day moving average, supporting an upside potential within these couple of days.
RSI analysis - The Relative Strength Index is currently at 50 spot, indicating both an upside and downside potential due to its neutral overbought or oversold indicator.
OBV - Currently, it seems to track the price but it is generally lower, making it a negative indicator.
Yes, the stock price is trading at 28.64 on August 25th. This is very high compared to a few years ago due to its recent run ups. However, if you take a look at its prices back in the post 2008 recession, it was trading at 52.88, almost double the current price. It definitely has future potential. The OBV compared to 2008 seems much more promising, indicating how smart money (institutional investors) have poured in the company and can break new highs. Overall, the technical analysis illustrates the potential upside, but this does not mean it is the best time to invest. It can definitely experience a drawback. However, if instead the stock goes up, there could be a missed opportunity. (GOLD).
Financials
When analyzing a gold mining company, it is very important to take a look at their financials due to their substantial capital expenditures for mining operations. Their quick ratio = 1.94, which is a ratio over 1, revealing their strong financials and their ability to convert assets to cover liabilities. Secondly, Return on Equity (ROE) is = 20.6%, an indication of the extremely high levels of profit the company can generate from equity to return to stockholders. Normally, gold mining companies range from 5% to 9%, with the best performing companies with 15%. Lastly, what makes this company extremely attractive is the ability to make a profit as long as the gold price per ounce is higher than $950. As a comparison, gold is currently being traded for around $2000 per ounce. Even if the gold price does not increase significantly, Barrick Gold will be having a very high profit margin. Overall, Barrick Gold’s financials are extremely strong and are capable of operating during fluctuations in gold prices.
Why Warren Bought (GOLD)
Many major news outlets portray Warren Buffet is buying gold. But in fact, he did not buy gold but bought a gold mining company: Barrick Gold. However, this is still major news for the investor community because he hated gold. He said, “Gold gets dug out of the ground in Africa, or someplace. Then we melt it down, dig another hole, bury it again and pay people to stand around guarding it.” In fact, he bought this company because of its undervaluation. I ran a DCF analysis, and the intrinsic value of Barrick Gold is about $38 per share. Currently as of August 25th, it is trading at 28.72, giving it some leg room. The analysis was performed with analyst forecasts. Another reason Warren Buffet bought Barrick Gold instead of other gold mining companies, such as junior miners, is because Barrick Gold is stable and contains potential, while also having liquidity. This matters significantly to Berkshire Hathaway because with their assets under management, they will not be able to buy a junior miner company’s shares because of its liquidity. Furthermore, this also increases the spread of bid and ask, which is significant to large trades.
In Conclusion, Barrick Gold portrays themselves as an undervalued profitable company with great upside during an economic crisis. I do believe there are better alternatives with junior miners, but Barrick Gold shows more stability and liquidity. For Lallic Partners, we bought (GOLD) a while ago to hedge against a possible stock market reversal and a possible year of high inflation.
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