Should you be bullish on Barrick Gold (GOLD Stock)?

Barrick Gold (NYSE: GOLD) remains a key player in the commodities market, with exposure to both gold and copper. The company remains at the center of investor interest, mainly due to its portfolio of assets and valuation, but issues remain with the volatility of commodities, which may be keeping the stock price at bay.

Copper prices continue to drive revenue during the latest quarter

Copper production was up 25% during the latest, which led to a record level of revenue for the company. Barrick produced 120 million pounds of copper during the quarter, meanwhile, gold production came in at 1.04 million ounces, as production from the Nevada, Argentina, and Tanzania mines ramped up. Management has indicated that production will continue to increase throughout the year, which should result in record revenue for Barrick.  The mine in the Dominican Republic also witnessed a life-cycle extension taking the mine's lifetime service to 2040, with production forecasted at 800,00 ounces a year.

CEO states the following: “We’ve taken the leadership in integrating the various aspects of ESG and managing these complex issues in a measured and holistic manner,” he said.

“There are challenging times ahead, but Barrick faces them with strong and agile leadership, a robust balance sheet, solid Life of Mine plans, a reliable cash flow, and a strategy focused on sustainability and value creation.”

Where are gold and copper prices going?

Demand for copper remains subdued as China, which has been the biggest consumer of copper for more than a decade and has been facing headwinds, largely due to weakness in real estate and lower infrastructure spending.  Many builders have started to default and demand is only likely to worsen further.  Infrastructure spending by the government has also been pared back, as the government looks to balance debt and takes a more holistic approach to the future, by focusing on consumption rather than investment. But copper is facing increased demand from other areas mainly from EVs. Market projections currently estimate that by 2030, 27 million EVs will be sold annually and analysts see a significant copper shortage despite a significant increase in copper mining. 

The current market deficit estimates stand at around 87,000 tonnes and that shortage is expected to increase to around 97-100k tonnes in 2023. Analysts had predicted a correction in copper, but that correction has not yet come to fruition. Until then copper continues to trade in a range of around $7500-7600 per tonne, still above its pre-pandemic highs

Gold on the other hand has been witnessing upward pricing pressure, and with news that bankers were manipulating the price of gold, analysts are now expecting gold to head towards $2500 per ounce, in the near future. Gold just like copper is facing demand issues, as inflation leads to an increase in gold ETF flow, and demand for jewelry has also been a key factor in the shortage. The realized price per gold during the latest quarter came in at 1860, slightly below the previous quarter, but higher than in 2021. Should gold head towards $2000 per ounce, which is likely, revenue during the next couple of quarters will also see significant increases.  Commodities continue to run hot in general, as years of mispricing are finally beginning to take a hold of the market.

Barrick Gold could outperform in the near future

Barrick gold currently trades at 13x price to earnings and has a forward P/E of around 11. With production set to ramp up extensively over the next couple of years, revenue and earnings should rise significantly as well. The company’s cash flow also remains robust, with operating cash flow during the quarter coming in at $924 million and free cash flow coming in at $169 million, and EPS coming in at 24 cents.

But Barrick Gold’s stock has underperformed over the years, as investors remain on the sidelines, due to the nature of commodities. This on one hand creates value opportunities for investors but risks remain, as long-term historical underperformance could continue to plague the stock in the future.

Regardless, the company has a strong balance sheet, with debt to equity currently at 0.21 and a current ratio of 4, which makes the company quite liquid. Barrick Gold currently has $5.7 billion in cash and cash equivalents, which allows them either through M&A or through exploration to increase their revenue should demand to require it. In general, investors might be willing to take a look at Barrick Gold stock, mainly due to its strong underlying assets, and the increasingly bullish commodities cycle, which hasn’t shown signs of slowing down anytime soon.