Why Barrick Gold Stock Is One Of The Strongest Buys (NYSE:GOLD)

In our view, Barrick Gold (NYSE:GOLD) is one of the strongest buys in the market today because the stock offers exposure to two separate exciting investment stories at a compelling valuation. In this article, we will dig into these two separate exciting upside stories and then will share several other reasons why we are bullish on GOLD stock.

Story #1: Substantial Upside Potential For Gold Prices

GOLD’s primary source of profits is its gold mining (GDX) activities. Given that mining involves significant fixed sunk costs as well as ongoing operating costs, GOLD’s profits (and by extension its dividends, buybacks, and stock price) are highly leveraged to the price of gold (GLD). Our bullish outlook on the mid to long-term price of gold therefore makes us bullish on GOLD as well.

The biggest reason to be bullish on the long-term price of gold is simply that debt levels across the government, corporate, and household domains of the economy are so elevated and government deficit spending is so rampant that central bankers will largely be forced to fight to keep interest rates below the prevailing rate of inflation. As past history has shown, negative real interest rates (when interest rates are higher than the nominal interest rate) are a major tailwind for gold prices.

Another major bullish indicator for gold prices is that central banks have been buying gold hand-over-fist recently, setting records for doing so in 2022. Reuters recently reported:

Central banks added a whopping 1,136 tonnes of gold worth some $70 billion to their stockpiles in 2022, by far the most of any year in records going back to 1950

Another big reason to be bullish on gold is that there is tremendous geopolitical and macroeconomic uncertainty and risk at the moment. Gold has served as the safe haven option of choice for millennia and could very likely catch a significant bid should the economy experience a sharp downturn and/or a major geopolitical event occur.

Story #2: Substantial Upside Potential For Copper Prices

Another underrated long-term catalyst for GOLD is its copper business. While it only provides a modest ~18% of the company’s current revenues, this figure could very possibly double or more in the coming 5-10 years due to several impressive copper projects currently under development. We also would not be surprised to see GOLD target its current exploration and near-term M&A considerations towards copper as it has made clear that becoming a joint major gold and major copper miner is its ambition.

The company’s stated mission is to create the world’s “Most Valued Gold and Copper Company” and is advancing its copper business via its robust copper growth pipeline. These projects include Reko Diq and Lumwana Superpit, which alone could double the company’s current copper production once Reko Diq simply achieves full production in Phase One. The company is reportedly targeting 2028 for first production from the Reko Diq copper-gold mine in Pakistan’s Balochistan province and expects it to have a life of at least 40 years, making it an extremely prolific and valuable asset for the company. GOLD also recently signed a new joint venture agreement with Saudi Arabian partner Ma’aden for two significant prospective copper exploration projects.

In addition to its exciting copper production profile, copper prices themselves have exciting upside potential. In fact, copper is often referred to as the “metal of the future” given its critical role in the multi-trillion dollar effort that is just getting underway to decarbonize the global electricity grid. Currently more than 65% of the world’s copper is being used in electricity applications and renewable energy technologies often use between 4-5x more copper than fossil fuel power generation. The same is true of electric vehicles relative to internal combustion engine vehicles. With renewable energy production and electric vehicle use expected to grow exponentially in the coming years and decades, the growth profile for copper is incredible.

According to the S&P Global copper study published in July 2022, annual copper demand is expected to double by 2035 and continue to grow from there all the way until 2050. As a result, it is expected that there will be a very large supply-demand gap. This means that the price of copper is very likely to soar in the coming years and decades, which means that – while GOLD’s copper production is expected to double in the coming years – GOLD’s revenue and profit from copper could very likely multiple by a much larger amount.

When you combine the bullish thesis for gold (and GOLD’s stable gold production profile) with the bullish thesis for copper (and GOLD’s exciting copper production growth potential), GOLD has a very clear path to generating strong earnings and free cash flow growth in the coming decade and beyond.

Other Reasons To Be Bullish On GOLD

In addition to its compelling long-term growth potential, GOLD also benefits from four more major strengths that make it a Strong Buy in our view.

First, it has arguably the best CEO in the industry in Mark Bristow. As Old West Management recently wrote:

Mark Bristow, at that time CEO of Randgold, was considered one of the best gold mining executives in the world. Thornton wanted Bristow so badly Barrick bought Randgold in 2018. Bristow who is South African, had extensive experience operating mines throughout Africa, and in fact would fly his own single engine plane to visit mines. He has his PhD in Geology, and he has flourished running Barrick the past five years.

Having a CEO at the helm who intimately understands the mechanics of the business at its fundamental level cannot be overstated. His track record speaks for itself.

Second, GOLD owns some of the very best assets in the world, giving it a great production profile and strong profit margins that support free cash flow generation through the ups and downs of gold and copper prices.

Third, GOLD is now a net debt free company, combining with its strong free cash flow generation to give it significant financial heft to respond opportunistically and aggressively as investments present themselves to GOLD’s skilled management.

Finally, GOLD looks undervalued relative to peers and its own history, with its EV/Revenue below its historical averages and well below that of peers like Agnico Eagle Mines (AEM). Management is putting its money behind its mouth by buying back stock quite aggressively while also paying out a meaningful dividend.

Investor Takeaway

There is a lot to like about GOLD right now: its substantial leverage to likely long-term upside in gold prices, its exciting copper production growth profile as well as the bullish outlook for copper prices, its world-class asset portfolio, highly skilled CEO, stellar balance sheet, and attractive valuation. As a result, we view it as one of the strongest buys in today’s market along with a few other attractive dividend-paying materials stocks.