Barrick Gold: Inflationary pressures erode profit margins (NYSE: GOLD)

Introduction

Barrick Gold of Toronto (NYSE: GOLD) released its first quarter 2022 results on May 4, 2022.

1 – Overview of 1Q22 results

First quarter production was 990,000 oz (sold 994,000 oz) of gold and 101 Mlbs of Copper (sold 113 Moz).

The average gold market price in 1Q22 was $1,876 per ounce, while the average copper market price was $4.53 per pound – a good sequential advance on that front.

Barrick Gold said it remains on track to meet 2022 production guidance despite higher costs due to global energy prices and inflationary pressures in the global supply chain.

2 – Stock market performance

Barrick Gold is one of three gold mining companies that I consider my top long-term “gold miners” along with Newmont (NEM) and Agnico Eagle (AEM).

We can see that Barrick is underperforming Newmont but doing better than Agnico Eagle. GOLD is down 15% in one year.

3 – Investment thesis

The investment thesis has not changed for many years and aligns with my previous statement on GOLD as one of my gold producers of choice. Thus, I recommend holding a long-term baseline GOLD position.

However, the price of gold is becoming more volatile and I expect this trend to continue throughout 2022. Inflation is high and the Fed’s inaction over the past year has led to a situation out of control that will cause the FED to become much more hawkish, hurting the price of gold.

Thus, it is crucial to use around 40% of your total investment in GOLD to trade LIFO stock in the short term.

CEO Mark Bristow said on the conference call:

As we announced, production was lower than previous quarters for reasons I will explain later. As expected, we expect the second half of the year to be stronger, which should enable us to meet our full-year guidance. Our top assets generally performed well, with Loulo-Gounkoto posting exceptionally good results. Other highlights of the quarter include the agreement in principle with Pakistan for the restart of the Reko Diq copper gold project, which we believe will be a Tier 1 asset in all respects.

Barrick Gold – 1Q22 balance sheet and production data: the raw numbers

Barrick Gold	1T21	2Q21	3Q21	4Q21	1Q22
Total revenue in billions of dollars	2.956	2.893	2.826	3.310	2.853
Net income in billions of dollars	0.538	0.411	0.347	0.726	0.438
EBITDA billions of dollars	1.788	1.613	1.563	2.151	1.553
Diluted EPS in $/share	0.30	0.23	0.20	0.41	0.25
Cash flow from operations in millions of dollars	1,302	639	1,050	1,387	1.004
Capital expenditures in millions of dollars	539	658	569	669	611
Free cash flow in millions of dollars	763	-19	481	718	393
Total cash in billions of dollars	5.67	5.14	5.04	5.28	5.89
Long-term debt in billions of dollars	5.15	5.15	5.15	5.15	5.14
Dividend per share in $	0.23	0.23	0.23	0.20	0.20
Shares outstanding (diluted) in billions	1.778	1.779	1.779	1.779	1.779
Gold production	1Q21	2Q21	3Q21	4Q21	1Q22
Gold production K ounces	1,101	1,041	1,092	1,203	990
Copper Production Mlbs	93	96	100	126	101
Byproduct AISC $/Oz	1,018	1,087	1,034	971	1,164
Realized Gold Price $/Oz	1,777	1,820	1,790	1,793	1,876

The data source: Company press release

* Estimated by Fun Trading

Note: Historical data from 2015 is only available to subscribers.

Part I – Barrick Gold – Balance Sheet Analysis

1 – Income details. GOLD gained $2.85 billion in 1Q22

Barrick released its first quarter 2022 results on May 4, 2022. Barrick reported total sales of $2,853 million, down 3.5% year-over-year.

The company’s net income was $438 million, or $0.25 per diluted share in the first quarter of 2022, compared to $538 million, or $0.30 per share in the year-ago quarter. After adjusting for items that are not indicative of future operating profits, adjusted net income was $463 million in the first quarter of 2022, down $44 million from the same period. the previous year.

Net cash from operating activities fell 22.9% year-over-year to $1,004 million from $1,302 million a year ago, the price of gold hitting $1,876 an ounce this quarter.

Cost of sales was $1,739 million this quarter.

2 – Free cash flow was $393 million in 1Q22

Note: Generic free cash flow is operating cash flow minus capital expenditures.

Free cash flow for the quarter was $393 million and 12-month free cash flow is $1,573 million, which covers the dividend payment.

Barrick Gold declared a quarterly dividend of $0.20 per share, the first to include a performance component of $0.10 per share in accordance with its new dividend policy.

3 – No more nand debt and free cash of $5,887 million in 1Q22.

Total debt was $5.144 billion at the end of the first quarter and total cash was $5.887 million. The company has an excellent debt position with net cash of $743 million.

Part II – 1Q22 Gold Production and Commentary

The company reported first-quarter gold production of 990,000 ounces Au (sold 993,000 ounces) and 101 million cu-lbs (sold 113 million cu-lbs).

The average gold price in the third quarter was $1,876 per ounce, while the average copper price was $4.53 per pound. The AISC is high this quarter at $1,164 an ounce.

1 – Gold production details and historical charts

Production again this quarter was particularly weak, as illustrated below:

2 – Copper production by mine and quarter ending Q1 2022.

1Q22 copper production was 4.2% lower than 4Q21 at 101 Mlbs and sold 113 Mlbs. In 4Q21, Barrick produced 126 Mlbs and sold 113 Mlbs.

3 – Realized gold and copper prices

The average market price for gold in the first quarter was $1,876 per ounce, and it was $4.53 per pound for copper. Barrick benefited from excellent pricing this quarter.

3.1 – Gold price history

3.2 – Realized copper price

The realized gold price in the first quarter of 2022 increased 4.6% sequentially, and the realized copper price increased 3% sequentially.

Barrick Gold All-in 1Q22 gold sustaining costs per ounce. was $1,164 per ounce, which is a record due to low production sold.

Technical analysis and commentary

Note: Chart is adjusted for dividend.

GOLD is forming an ascending triangle with resistance at $25.7 and support at $19.6. The average resistance/support is now $22.75. The RSI (14) is oversold at 24, showing a buy signal.

The overall strategy I promote in my market, “The Gold And Oil Corner”, is to maintain a long-term middle position and use around 35% to trade LIFO (see note below) pending a final price target higher for your base position between $30 and $33 and pocket the dividend in the meantime.

The trading strategy is to sell about 20% above $22.75 (medium resistance) and another 15% between $25.5 and $26.

I suggest waiting for a retracement between $20.47 (50 MA) and $19.5 to add again, with support below $18.25. The RSI is now at 24, which is a buy signal.

Watch the price of gold and the mood of the Fed like a hawk.

To note: The LIFO method is prohibited by International Financial Reporting Standards (IFRS), although it is permitted in the United States by Generally Accepted Accounting Principles (GAAP). Therefore, only US traders can apply this method. Those who cannot trade LIFO can use an alternative by creating two different accounts for the same security, one for long term and one for short term trading.

Warning: The TA table must be updated frequently to be relevant. This is what I do in my stock tracker. The table above has a possible validity of approximately one week. Remember that the TA chart is a tool only to help you adopt the right strategy. This is no way to predict the future. Nobody and nothing can.

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