Is Barrick Gold a Good Buy Today – $GOLD Stock Analysis – Barrick Stock Analysis

by birtanpublished on August 25, 2020

Hi i'm jimmy in this video we're looking at barrick gold ticker symbol g-o-l-d now barrett gold is interesting because as many of us know recently berkshire hathaway took a big stake in the company i think

They're the 11th largest shareholder now which is clearly a reason for us to wonder why did they do it and is it worth buying today so we're going to look quickly at their business and then we're going to see if

We can come up with a fair value of their stock so let's jump right in so barrett gold is a gold mining company and when we look back at their 2019 revenue well we can see that they actually have some copper mines as well

But clearly the gold mines make up the majority of their revenue accounting for about 96 of total revenue in 2019. and we look at the map that i took this right from their annual report

We can see that they have mines all over the globe okay so now we know what they do basically they mine for gold and then they sell it on the open market and we look at the price of gold well we

Can see that gold has been on an impressive run higher over the past few years and this is likely to lead to higher profits for barrett gold but we might ask how much more profit

Will they be able to generate to get a better understanding of this it makes sense for us to look at some data that barrett gold publishes in their annual report this is a chart

Of how much cash it costs barrick gold on average to extract gold they also publish some material for extracting copper but again gold is the majority of their revenue so that's where we're going to

Focus but as we could see these costs have been trending higher which is logical but it's also possible as we can see here that a mining company can in fact reduce

Their cost to extract the same amount of gold and that in theory could lead to higher profits even if gold prices stayed the same now as i mentioned in the last video i did on gold

Well there were quite a few signs that gold could keep moving higher obviously gold is known as being a good hedge to the stock market and when we consider the current level of uncertainty in the market

Well it's my guess that at least some investors are going to be going out looking to hedge their investments and go out and buy gold plus gold tends to do well in a in the environment where we have high inflation

And we know that the fed is doing a lot to sort of spur higher inflation in the over economy as they put new capital into the system so now going back to this chart now we add realized sales to this chart

This data came straight from barrick gold's annual report and these green bars are how much barrick gold was able to sell the gold that they mined for how much were they able to sell it on

Average throughout the year so for this time period here where they have falling sales prices and increasing costs well we can guess that that's not too good for profit we'll come back to that

One a second but for now let's add revenue to this chart these blue bars represent the total company's revenue and as we predicted we saw a decline in revenue for a few years and this makes sense

Because we saw declining realized sales which is the amount they sold the gold for so if they're selling it for less clearly they're going to end up with less revenue

And just to complete this story let's switch over to profits now so now the orange bars represent net income which is the same as profit and we're seeing a very similar story here profit has fallen

As the sale prices have decreased and costs have increased this is very logical now we may notice that 2019 the profits were somewhat lower than we might have expected

And this was actually due to a decrease in production despite rising gold prices and i bring this up because i mentioned this in the last gold video that i did while yes gold prices play a huge role on the profits of mining company

They're certainly not the only factor to consider so this brings us to today well now we know that just recently berkshire hathaway took a decent stake in barrick gold and it was somewhat surprising since

Buffett has long talked about how useless gold really is especially compared to something like farmland but it is very possible that it wasn't warren buffett himself who bought it after all

Perhaps it was one of the two money managers that he has working at berkshire hathaway or perhaps they saw something from an operational standpoint that leads them to believe that this

Company should do well yes many signs are pointing to the fact that gold the price of gold could continue to move higher or at least stays stable at this point due to the

Overall economic environment and that would ultimately help the profits of the company so our question is what do we think is a reasonable fair value for barrick gold stock

And is it worth buying today well this is a discounted free cash flow calculation that i put together using some analyst estimates that i was able to find now i'm not going to take too much time walking through this

How this entire calculation is done i actually did a whole video on how to do this i have an excel template if you want and i'll leave a link to that video in the description below

But basically what we did here is we took analyst estimates and we discounted those by a required rate of return in this case i'm using seven and a half percent because that's for me that's about five percent

Higher than aaa corporate bonds and i think that's a reasonable required return to aim for in this overall economic environment then i used a perpetual growth rate of two and a half percent

And that's about in line with the long-term growth of gdp so once again to me this makes sense this seems like a reasonable price to use and that gives us a total company value

Which we then divide by the shares outstanding that gives us the fair value of the stock of about thirty seven dollars per share right now barrick gold is about thirty

Dollars per share so that's still a decent amount of upside now we don't have to worry too much about debt for this company because if we would add debt to this whole mix well

First we take away the total debt from the company value and we still end up with a fair value that's stock about 35 per share and this brings us to the question is it worth

Adding barrick gold to our portfolio well from a price perspective it seems like it's fairly good there is a decent amount of upside but for me i'm not sure it's worth it at

This price sure if we got a 20 lower like berkshire hathaway did maybe but for me it's a more of a personal issue and this is where i'm leaning on what

Buffett used to say or what he has said most recently before they went out and bought this here's what i mean see these analyst estimates well in order for them to come up with an

Estimate if we were going to create a model for this company a full financial model we're going to project all the different line items one assumption we would have to make is we'd have to make an assumption

On the price of gold it's the only way to come up with profits revenue or free cash flow so these free cash flow numbers have to there has to be a baked in assumption forward gold is going to be

And clearly as we can see with these numbers the jump from 20 2020 to 2021 that's logical that's partially due to the covet shutdown because productivity in 2020 has been

Somewhat lower for barrick gold so the 2020 to 2021 that could just be an improvement in productivity but the gradual increase in free cash flow from there implies

Either rising gold prices or perhaps flatish gold prices and improvement in costs but what if that doesn't happen what if gold prices go down see buffett has always preached about

Looking for a company looking for companies that have a moat and i have trouble explaining what barrick gold's moat would be they're price takers if the price of gold falls well

That's what they have to deal with they're going to sell their price they're going to sell their products for less now granted i do think that there's a good chance that gold goes higher

Due to the overall macro environment but still barrick gold is somewhat victim to what they're able to generate in profit maybe not profit but certainly revenue but given the risk i personally want to

See a bit bigger of a margin of safety outside of the seven or five dollars potential upside that the calculation is showing us from here but that's really an opinion thing

Now if you're curious to see some more about gold itself or gold not just gold the commodity but the overall environment for gold i recently did a video on gold and perhaps that could be a good next video for you to

Watch i've got a link right here i got a link in the description below and thank you so much for sticking with me all the way to the end of the video i really appreciate it thanks and i'll

See in the next video

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