Reko Diq And Fourmile Projects Will Expand Production And Diversify Operations

Key Takeaways

• Strategic investments in new projects and expansions position Barrick for sustained production growth, boosting future revenues and diversification.
  
• Initiatives to reduce liabilities and streamline operations aim to lower long-term costs, improving net margins and profitability.
  
• Operational challenges, capacity constraints, inflation, and political risks could negatively impact Barrick Gold's future production, revenue, and cost management.

Catalysts

Engages in the exploration, mine development, production, and sale of gold and copper properties in Canada and internationally.

• Barrick Gold's significant investment in infrastructure at Nevada Gold Mines, including plant ramp-ups and expansions, positions it for sustained long-term production growth, potentially increasing future revenues.
  
• The development of Barrick’s Fourmile project, which has grades more than double those of Goldrush, indicates potential large-scale production growth, likely boosting revenues and earnings.
  
• The ramp-up at Pueblo Viejo plant aims to sustain more than 800,000 ounces of gold production annually through 2040, promising future revenue and margin improvements once optimal recovery rates are achieved.
  
• Strategic advances in the Reko Diq copper-gold project and the Lumwana Super Pit expansion are expected to transition Barrick into a significant copper producer by 2028, diversifying and enhancing revenue streams.
  
• Barrick's ongoing tailings facility closure measures and a reduction in associated liabilities are set to decrease long-term closure costs, improving net margins and boosting profitability.

Barrick Gold Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Barrick Gold's revenue will grow by 9.5% annually over the next 3 years.
• Analysts assume that profit margins will increase from 13.2% today to 24.5% in 3 years time.
• Analysts expect earnings to reach $4.0 billion (and earnings per share of $2.27) by about February 2028, up from $1.6 billion today. However, there is some disagreement amongst the analysts with the more bearish ones expecting earnings as low as $3.5 billion.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 11.5x on those 2028 earnings, down from 18.3x today. This future PE is lower than the current PE for the CA Metals and Mining industry at 13.4x.
• Analysts expect the number of shares outstanding to decline by 0.43% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 7.03%, as per the Simply Wall St company report.

Barrick Gold Future Earnings Per Share Growth

Risks

• Barrick is tracking towards the lower end of its production guidance for 2024, which may imply some downside risks to future production and cost outlook, potentially impacting revenue and net margins.
  
• The company experienced challenges such as a big sidewall failure at the Gold Quarry pit and ongoing infrastructure issues at the Turquoise Ridge, which may lead to increased sustaining capital expenditures and pressure on margins.
  
• Barrick is constrained by its processing capacity in Nevada due to the reliance on refractory ore, with further expansions possible only with additional capital investment, potentially impacting future production and costs.
  
• Inflationary pressures, particularly on labor costs, and challenges related to cost management in the U.S. market could pose risks to Barrick’s future earnings and cost control measures.
  
• Barrick’s engagement with the Malian government over sharing economic benefits from the Loulo-Gounkoto complex introduces political risk, which could affect future revenue and margins if negotiations are not favorable.

Valuation

• The analysts have a consensus price target of CA$30.913 for Barrick Gold based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of CA$38.83, and the most bearish reporting a price target of just CA$24.03.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $16.2 billion, earnings will come to $4.0 billion, and it would be trading on a PE ratio of 11.5x, assuming you use a discount rate of 7.0%.
  
• Given the current share price of CA$24.33, the analyst price target of CA$30.91 is 21.3% higher.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.