Barrick Gold: Gold Medalist Crushing Plant

With 140 million ounces of proven and probable gold reserves and 78 million ounces of gold production, Barrick Gold (NYSE: ABX) (TSE: ABX) is simply the world’s largest gold exploration and production company

To cite a few highlights from Barrick’s 2010 annual report:

Record adjusted net income from $181 billion in 2009 to $328 billion in 2010

Record adjusted operating cashflow from $290 billion in 2009 to $478 billion in 2010

Increased dividend by 20% from $04/share in 2009 to $044/share in 2010

Record realized price of gold from $985 per ounce in 2009 to $1,228 per ounce in 2010

Industry’s only ‘A’ credit rating

Infact, as we speak, Barrick’s Q2 results have shown a further improvement in net margins of another 500 basis points over last year’s results in a markedly slowing global economy

Barrick Gold, at 13 times last year’s earnings per share, is still reasonably priced for being the world’s largest miner and producer of – arguably – the world’s most sought after commodity at the present time So much so that, despite having better fundamentals than its competitors across a variety of metrics, the stock trades at a healthy discount visàvis its peer group (except Newmont mining which trades modestly lower than Barrick at 129 times trailing earnings;)

Here are a few valuation data for Barrick visàvis its peer group:

Company Barrick Gold   Newmont Mining   AngloGoldAshantiGoldcorp Kinross Gold

Ticker Symbol       (NYSE: ABX)       (NYSE: NEM)       (NYSE: AU)   (NYSE: GG)  (NYSE: KGC)

PriceEarnings Ratio      132 129 211 241 166

PriceBook Ratio    25   22   41   19   14

PriceSales Ratio    44   34   31   105 63

What this also means is a positive momentum in the stock price of the company

Crucially, from a shareholder’s perspective, the company improved its ReturnonEquity from 12% in 2009 to 19% in 2010

Gamechanging copper reserves, on the other hand, have not come online for a significant period of time Hence, outlook for copper is bullish beyond the shorttomedium term stoneow while the Eurozone sorts out its sovereign debt issues and the emerging economies take a breather from a decade long spate of high singledigit GDP growth

In a period fraught with geopolitical unrest in many parts of the world, Barrick enjoys a distinct advantage over other miners by having majority of its reserves and production capabilities located in politically stable parts of North America,Latin Americaand Australia/Pacific Furthermore, its geographic presence is welldiversified to hedge against concentration risk as well as from a potential fallout from “nationalization” of mining assets in any one part of the world

Looking out into the future, the company is aiming for a gold production target of 9 million troy ounces by 2015 Assuming such production growth occurs on a linear basis, this target represents a modest increase of 300,000 ounces a year from its current level of 78 million ounces The company is not resting on its laurels either; in order to continually strengthen its pipeline of reserves, Barrick’s 2011 exploration budget has increased to $320$340 million

Ultimately, Barrick trades in commodities that provide tangible sources of stability and security on the one hand (gold) and growth and development on the other (copper) So, whether one is bullish or bearish on the outlook for the global economy, at less than $50 a share, the stock is a “Buy” over the next 6 to 12 months

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