Barrick Gold Earnings: Solid, Driven by Increased Gold Sales Volumes and Prices

We retain our fair value estimate of USD 21 per share for no-moat Barrick Gold ABX after its 2023 third-quarter result met our expectations. Adjusted EBITDA of USD 1.46 billion rose 27% on the third quarter of 2022, driven by higher gold prices and sales volumes, partially offset by increased unit cash costs. The balance sheet remains strong, with minimal net debt of about USD 510 million. It will pay a USD 0.10 (CAD 0.137) per share dividend in December, half that paid last year but in line with its dividend policy. We forecast total 2023 dividends of USD 0.40 (CAD 0.548) for a 2.5% forward yield at current share prices. Barrick targets a quarterly base dividend of USD 0.10 per share, with additional dividends potentially payable if it has net cash on the balance sheet. We think this is a reasonable approach. Though as its shares trade at around a 24% discount to fair value, we think share repurchases would be a better use of surplus funds. We think the discount to fair value is likely due to concerns over rising real interest rates, which are a headwind to gold prices.

Barrick lowered full-year production guidance while also guiding to increased unit cash costs. This is mainly due to weak production at its Nevada Gold Mines and Pueblo Viejo joint ventures with Newmont, which is unlikely to be fully made up in the fourth quarter. We now forecast 2023 gold sales of 4.0 to 4.1 million ounces, modestly down from 4.2 million, and unit cash costs of about USD 910 per ounce, up from USD 890, but these changes are immaterial to our fair value estimate. We continue to forecast gold sales rising to around 4.6 million ounces in 2027, driven by increased production at Barrick’s joint ventures with Newmont. Like Newmont, we think higher sales will lower Barrick’s currently elevated unit cash costs and keep it within the second quartile of the industry cost curve. However, its elevated capital base hurts returns and means we don’t allocate it a moat.