Investments In Lumwana And Reko Diq Will Expand Gold And Copper Reserves, Driving Future Opportunities

Key Takeaways

• Strategic investments in reserves and projects could drive revenue growth and capitalize on future commodity price increases, enhancing long-term earnings potential.
  
• Cost efficiencies and strong cash flow generation may boost net margins and earnings per share through reduced costs and share buybacks.
  
• Geopolitical instability, operational delays, and safety concerns pose risks to Barrick's revenue, earnings, and project timelines, impacting financial stability and market position.

Catalysts

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

• Barrick Gold's commitment to expanding its gold and copper reserves through strategic investments in Lumwana and Reko Diq is expected to drive future revenue growth, with the potential to significantly increase production.
  
• The focus on cost efficiencies, demonstrated by a 3% reduction in cost of sales and a 5% decrease in total cash costs, could improve net margins over time, especially as production scales up.
  
• The substantial addition of gold and copper reserves, along with the advancement of projects like Fourmile, positions Barrick to capitalize on potential increases in commodity prices, potentially boosting future earnings.
  
• Barrick's robust balance sheet, with strong cash flow generation (104% increase in full year free cash flow) supports continued share buybacks, which may enhance earnings per share by reducing the share count.
  
• Strategic growth opportunities in regions like Africa and the Middle East, coupled with ongoing investments in sustainability and infrastructure, such as the Pueblo Viejo and El Naranjo Tailings Storage Facility projects, aim to support long-term revenue and profit stability.

Barrick Gold Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Barrick Gold's revenue will grow by 9.3% annually over the next 3 years.
• Analysts assume that profit margins will increase from 16.6% today to 21.4% in 3 years time.
• Analysts expect earnings to reach $3.6 billion (and earnings per share of $2.11) by about April 2028, up from $2.1 billion today. However, there is a considerable amount of disagreement amongst the analysts with the most bullish expecting $4.8 billion in earnings, and the most bearish expecting $2.0 billion.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 13.7x on those 2028 earnings, down from 16.6x today. This future PE is lower than the current PE for the CA Metals and Mining industry at 14.7x.
• Analysts expect the number of shares outstanding to decline by 1.63% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 7.13%, as per the Simply Wall St company report.

Barrick Gold Future Earnings Per Share Growth

Risks

• Recent geopolitical instability in Mali, resulting in export restrictions and the incarceration of team members, poses a risk to Barrick's operations and may negatively impact gold production and revenue from this region.
  
• Uncertainties surrounding the resettlement process at Pueblo Viejo and potential delays in critical infrastructure such as the tailings dam could affect future production targets, impacting revenue streams and necessitating unplanned capital expenditures.
  
• The need to finalize funding and permitting for major projects like Lumwana and Reko Diq could present financial risks if delays occur, potentially affecting earnings and future cash flows as project timelines extend.
  
• Continued fatalities in the mines highlight safety concerns that may lead to operational disruptions, increased compliance costs, or reputational damage, which could impact net margins by increasing costs associated with safety improvements.
  
• Unsettled political and operational issues in regions like Mali, where Barrick has ceased production, may require the company to incur unplanned costs or result in the loss of asset value, adversely affecting the company's earnings and market position.

Valuation

• The analysts have a consensus price target of CA$33.887 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$44.43, and the most bearish reporting a price target of just CA$26.34.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $16.9 billion, earnings will come to $3.6 billion, and it would be trading on a PE ratio of 13.7x, assuming you use a discount rate of 7.1%.
• Given the current share price of CA$28.64, the analyst price target of CA$33.89 is 15.5% 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.