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Barrick Gold: Solid Reserve Replacement Despite COVID-19 Headwinds

Apr. 04, 2021 9:00 AM ETBarrick Gold Corporation (GOLD), ABX:CA82 Comments
Taylor Dart profile picture
Taylor Dart


  • Barrick Gold released its FY2020 Reserves & Resources update last month, reporting a 2% decrease in reserves year-over-year to 68 million ounces of gold.
  • It's important to note that Barrick managed to maintain its near industry-leading reserves while maintaining its conservative gold price assumption of $1,200/oz, which is below the industry average of $1,300/oz.
  • At a share price of $20.20, Barrick trades at barely 10x trailing free cash flow, a very reasonable valuation for a company with one strong visibility into future production.
  • Therefore, if we were to see further weakness, I would view any pullbacks below $18.65 as low-risk buying opportunities.

Golden rock in the old mine
Photo by Ivan Boryshchak/iStock via Getty Images

The Q4 Earnings Season for the Gold Miners Index (GDX) is nearly over, which means that many companies are busy reporting their year-end Reserve & Resource statements. One of the most recent names to release

This article was written by

Taylor Dart profile picture
"A bull market is when you check your stocks every day to see how much they went up. A bear market is when you don't bother to look anymore."- John Hammerslough You can access more in-depth research, my current portfolios, new positions I am entering/exiting, and proprietary sentiment indicators for gold miners in my newsletter below.  Returns Link: https://imgur.com/a/6fcWjD6Subscription Link: https://buy.stripe.com/3cseV37nl9Y7dUcaEI - Disclosure: I am not a financial advisor. All articles are my opinion - they are not suggestions to buy or sell any securities. Perform your own due diligence and consult a financial professional before trading or investing.

Analyst’s Disclosure: I am/we are long GLD, NEM. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Disclaimer: Taylor Dart is not a Registered Investment Advisor or Financial Planner. This writing is for informational purposes only. It does not constitute an offer to sell, a solicitation to buy, or a recommendation regarding any securities transaction. The information contained in this writing should not be construed as financial or investment advice on any subject matter. Taylor Dart expressly disclaims all liability in respect to actions taken based on any or all of the information on this writing.

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Comments (82)

I am concerned that Barrick has put 20Moz from Donlin on their reserve statement. Resistance to mining the Donlin deposit are huge and as far as I know they have not been able to get a mining license yet.
Taylor Dart profile picture
Hi Robert,

I don’t see Donlin anywhere in their reserve base, and to my knowledge it’s never been included there. It has nothing to do with the 68 million ounce reserve base which supports 12+ years of mining even without reserve replacement.
@Taylor Dart In your table, North America reserves, there is a line item Donlin Surface, one line above Fourmile Surface (50%) that shows 20Moz. I have assumed it came out of their reserve statement but may have been mistaken.
BEAST MODE profile picture
That’s a lot of Yadda-Yadda for being Neutral on GOLD. You will be in for a surprise tomorrow. I see the trend for a breakout in GOLD. Although, 2019 was a better year, 2020 has some solid figures under the belt! I expect these figures to spill over into Q1. Although preliminary reports have been soft, Q1 results will surprise you. In 2020, Gross Margin is the best ever at 41.11% even though the Operating Margin has lagged. We are still at a reasonable Net Profit Margin at over 28%. Return on Assets, Return on Equity and Return on Investments have been respectable. Even though gold prices have been off in 2020, the above figures make me want to scream from excitement. Buy some May 21st $22.00 calls. Nice 200%-300% killing!!! Take profits within a week.
Good article for the bull case, but a few comments. Their valuation is highly based on the reserves, yet GOLD production dropped this past quarter and has been on a 2-year downtrend. I would expect the opposite. They also still include Pascua Lama in their reserves 6.1M oz (at 60%). This is 10% of the reserves, and where the risk is. Strategically, I suspect had the mine been in full production they would have had production growth (add PL to their production the past two years). Has this risk been priced in - hard to tell. Aside from this risk - production matters and with all these "reserves" they can't seem to get the gold out of the ground.
BeaBaggage profile picture
PNG 'deal' out..not great..some gold better than none, surprised Zijin went along- as they are basically PRC owned and PRC controls the debt in PNG..

hopefully Newcrest and Harmony decide that such an arrangement does not warrant the huge (US$3bil) cost to develop Wafi-Golpu in PNG and focus elsewhere. I am all for these poor 3rd world countries getting a fair shake on money to be made from resources but then they should also foot the bill for development to derisk said projects. Bea
Carson7 profile picture
Remember, the special dividend is a return of your capital, and the cost basis for each share will be reduced by the amount of the dividend. So, you will pay capital gains taxes on that dividend. That is fair.
InvestRite#1 profile picture
@Carson7 Do you have a date on the special dividend?
Carson7 profile picture
@InvestRite#1 They did not state when the special dividend will be distributed on the call...
@InvestRite#1, I read that it is to be distributed over the course of 2021.
BobinSea profile picture
Want a far better stock to consider?

Of all the Gold Stocks out there, there is at least ONE that is "ridiculously undervalued". That is the stock price of a small but consistently profitable company with a P/E of 4.38.

That is NOT a typo!

Wanna Guess?

It's Galiano Gold, (GAU) priced at $1.18

TipRanks best analysts have an AVERAGE 12 month price target of $2.05, which represents a 73% upside

From Etrade.com
"In the last 3 months, 4 ranked analysts set 12-month price targets for GAU. The average price target among the analysts is $2.05."
Carson7 profile picture
@BobinSea GAE is junk on all metrics
I just wish they had a better dividend, like they used to many years ago. I am focused on dividend growth, and don't buy a stock with the expectation to sell anymore. I am working on income replacement, and GOLD's paltry dividend is not up there yet.
@Kraken11 You're probably not considering the proposed $0.42 special dividend (return of capital). That puts the total dividend yield closer to 4%. Not bad.

@Kraken11 you’ll never get consistent dividend growth in gold stocks, way too cyclical. If you’re holding GOLD stock forever then you’re definitely going to see dividends cut sometime in the future. I still recommend owning it, but I don’t own any gold stocks I expect to hold forever or see consistent dividend growth with. Ride the wave, then bail.
InvestRite#1 profile picture
@deckofcards When is that special dividend being paid?
lorddarley profile picture
Why are dealer margins so high on bullion coins like the Maple Leaf? Is this a problem with mints, or a shortage of bullion? I don't understand having to pay $110/$120 over spot for Maple Leafs.
@lorddarley It's called obscene profit
lorddarley profile picture
@ggolflq1 Agreed. These are brokers I've dealt with in the past, and it drives home the point how inefficient it is to own physical. For those who say you should never sell, and pass on to children, I guess the costs to buy and sell don't matter.
The broker costs has kept me from buying more physical. That cost, plus the inefficiency of shipping and appraisal (even with new coins) if you want to sell has moved me out of the gold camp. Bitcoin may be 'just air" as my wife says, but it is so convenient and cheap to trade, and the capital gain rate is 8 percentage points less.
@lorddarley, have you tried the senior miners? Bountiful profits
for company and shareholder alike in a Gold Bull, which may be reawakening in April. This morning, did some light selling into strength to realize some gains.
GKIC profile picture
04 Apr. 2021
Thanks as always, Taylor,

To me gold price assumptions by Barrick, $1,200/oz, and by the industry, $1,300/oz seem pretty low ... is there any reason?
Taylor Dart profile picture

They use low reserve prices to bake in a large margin of safety between their mine plans and the spot price so that investors can see visibility into future production at conservative gold price levels, and not visibility based on current spot price levels. The lower the price they use, the better and more comfortable investors should be. When companies are raising their assumptions to current prices, that's where I would be nervous, like First Majestic just did with its $1,700/oz gold price assumption. It's also to make sure they aren't disappointed and losing money in a period of gold price volatility. If gold were to drop $300/oz this year for some reason to $1,400/oz, Barrick will be safe and not mining marginal ore that's going to hurt their bottom-line. Meanwhile, names like McEwen Mining using $1,500/oz prices would be in trouble, since their cut-off grade is based on a $1,500/oz gold price, and they'll run into some trouble and pile up losses.
GKIC profile picture
05 Apr. 2021
@Taylor Dart Thank you!!
The font size on your charts is so small that they’re illegible.
Taylor Dart profile picture
If you click on the image it should relatively easy to read. I'm using a font size of 11-13 in most cases.
@Taylor Dart On SA app on iPad if you tap on an image and zoom-in, then it will not let you un-zoom to close out of the image. You have to close the app and restart it. So your suggestion only works on PC. If reading on an iPad, your suggestion is not possible (maybe it's just me).
Taylor Dart profile picture
Thanks & sorry to hear the issue. I would recommend just using Safari in that case on Ipad (web browser) to see if that works. I do everything from laptop and don't really use IPad so not exactly sure for a work-around.
smokenmirrors profile picture
Taylor, always appreciate your time and effort! GOLD or KL if choosing between the two?
Taylor Dart profile picture

Thank you. I prefer KL, more reasonable valuation, better margins, more hated, better jurisdictional profile, and potential takeover target.
@smokenmirrors With 20.118M ounces of reserves, KL's enterprise value is 405x the reserve ounces; GOLD's enterprise value is at about 514x, so KL looks like a better value on that metric.
@Taylor Dart
Thank You TD
KL under $33.00👍🏻
7422981 profile picture
You are obviously looking for that weekly price gap to get filled at some point(entry price target). I focus on gaps as well, but at this point it looks to be a low probability in the near to medium term. Gaps(daily/weekly) such as this are still present in GOLD at much lower levels, and have not been filled. Gold(metal) has broken its 2021 downtrend, while I expect a pullback to retest the breakout downtrend line, I don't expect a relapse. Unless this is a failed breakout in the metal, implications for GOLD are that it will visit the upper downtrend channel over the coming weeks.

There is always the danger of a market wide event changing the outlook, the stock market looks extremely vulnerable at this stage, so I wouldn't totally discount your target entry price.... However, I think it becomes more of a possibility after the coming rally. The quarter end positioning led to a selloff of Gold/Miners, I think we are going to see some accumlation now to fuel a rally in April/May.

Very short term, a pulback in the metal and miners looks likely, but it should offer a buying opportunity in GOLD and the miners. GOLD(relative to the group, basis Friday's close) is my favorite based solely on technical factors, however SSRM looks great as well on a small pullback.
Taylor Dart profile picture
I'm not obviously looking at anything, I'm pointing out where valuation would be slightly more compelling to justify putting money to work. I still think there are more compelling ideas out there than Barrick on a country-risk adjusted basis, while also factoring in the small potential for M&A, which would very likely lead to a pullback to $18.00 if it occurs.
7422981 profile picture
@Taylor Dart What drives these stocks is money flow, and the metal trend(up/down), not the valuation metrics.....at least in the current market.
Putting money to work in this sector has been a losing proposition since the 2nd quarter of last year, regardless of metrics you cite. I doubt $18 is coming in the next couple of months, but if Gold fails to reassert the uptrend, a lower price for GOLD is likely, acquisition or not.

The South African based miners have a number of issues which should have made them poor relative performers using fundamental metrics, yet they have been standouts of late compared to the rest of the sector. So, there are other drivers affecting performance in the miners.
Taylor Dart profile picture
Well aware of how markets work - thanks. Gold/miners don’t always correlate, so that point is moot. Gold spent several months making new highs in 2011 while the sector went sideways and many names made new lows. Money flows out are great, that creates buying opportunities for those willing to be patient. Good luck.
I like the comment about looking at the strike point for reserve calculation as a deep indicator -- I'm curious if it is basically the same for low-grade open-pit mines and high-grade underground mines both? In my experience, a lot of underground mines seem to understand their local geology and have the ability to maintain a 3-5 year mine life pretty much indefinitely, while open pit miners, with easier access, are more constrained.
Taylor Dart profile picture
Hi Nick,

Thank you. Yes, generally underground reserves are lower on a reserve life relative to an annual production basis, partially due to the fact that it's expensive to drill it out ahead, but this becomes easier with increased development.
Strike profile picture
Excellent article. I expect huge upside to the metal price, based on stubbornly negative real interest rates and gradually rising inflation. Remember, the metal rose 450 % while the S&P actually sank 8 % from 2000 - 2011. History doesn't always repeat, but it is well worth considering the macroeconomic similarities between now and then.

Discl.: Very long GOLD, KL, NEM, GDXJ, ZSIL.SW and ZPAL.SW.
Taylor Dart profile picture
@Strike Thank you & thanks for reading.
@Strike, agree with everything you say except that “inflation is
“gradually rising.” Both Shadow Statistics & Chapwood Index
came independently to the same conclusion: inflation now 9%.
@Strike, I share some of your picks: NEM & GDXJ (my #1 and #4 holdings. Own less GOLD.
Would love to buy some miners as they've had a hefty correction since there run ups last spring and summer. Was lucky and bought the close line down in late March of last year and sold in the fall due to seasonal concerns. Have reluctantly come to the conclusion that it would be unwise to re-buy the gold miners because of the continued strong dollar, rising employment and strong stock market, not tail winds for the gold trade. Gold looks washed out but dead money while oil looks ready to go again. Buying oil watching gold.
Taylor Dart profile picture
With 12% - 18% forward free cash flow yields across much of sector, I would argue that some names have already priced in a strong Dollar, rising employment, and recent weakness in gold.
@Taylor Dart Thanks for the response and article. FYI: Also been recent insider buys in GOLD and CELTF>
Should $1200/oz. come to pass as GOLD presumes, think of the further supply constriction which would result.
Taylor Dart profile picture
@ghrcap I don’t understand comment. Barrick and others use $1,200/oz to be conservative and not chase after more marginal ore, their metals price assumption does not imply their predictions for future gold prices, it’s to build in margin of safety.
Great article Taylor. I bought some last week in $19s
Taylor Dart profile picture
@ilndboy7 Thank you & thanks for reading.
Thanks Taylor, another well written article on the gold space.

Let me ask some, what are your 5 top picks in the gold space?.

Thanks in advance
Taylor Dart profile picture
Hi YG,

Thank you for the kind words. I only share my top ideas and top takeover targets at www.tfsignals.com in my private newsletter. One name that I regularly write on here that remains a top idea is KL, but I save the rest for subscribers.
Great, Thank you.
Thank you Taylor for another excellent analysis. I have a problem with the comparative charts: it is almost impossible to read the names of the competitors. Can you solve this?
Taylor Dart profile picture
Hi Alemono,

Flattered it was of value - thank you. I don't share them outside of my private newsletter at www.tfsignals.com to be fair to subscribers, so I purposely minimize the text.
The all time high for Barrick is in the $50's. I believe it will set a new one at some point and that's when I'll sell.
Taylor Dart profile picture

Not sure the all-time high is relevant for comparative purposes. The company had ~1 billion shares outstanding in 2011 and now has ~1.78 billion shares outstanding. $32.00 is the old $56.00.
Carson7 profile picture
@Taylor Dart Exactly! This won’t be a Roman holiday, just a nice return..
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