Could Barrick Gold Corp (TSX:ABX) Double in 2019?

Barrick Gold Corp. (TSX:ABX) (NYSE:ABX) has reduced debt significantly and is about to get much larger. Is it time to buy this gold stock?

| More on:
Gold king in chess game face with the another silver team on black background (Concept for company strategy, business victory or decision)

Image source: Getty Images

The gold sector has been under pressure for seven years, but contrarian investors are looking at recent developments in the industry and thinking it might be time to start kicking the tires on some of the beaten-up stocks.

Let’s take a look at Barrick Gold (TSX:ABX)(NYSE:ABX) to see if it deserves to be on your buy list for 2019.

Consolidation

High-quality gold deposits are becoming harder to find, and governments in some countries are less friendly to gold miners than in the past.

The trend isn’t likely to change, which means the world’s basket of gold companies will likely get smaller in the coming years as the larger player acquire assets that are already in production or have agreements in place with local and national governments.

Barrick Gold’s recently announced plan to acquire Randgold is a big message to the industry. Combined, the two companies control five of the top 10 mines on the planet and have two other tier one mines in development.

Randgold has expertise in Africa where Barrick has run into trouble. For example, Barrick owns a majority stake in Acacia Mining, which has operations in Tanzania that have an ongoing battle with the government. Randgold staff, with their strong track record of operating in African countries, could potentially help sort out the Acacia situation and enable Barrick to secure additional opportunities on the continent.

The Randgold deal is expected to close in Q1 2019.

Financials

Barrick has made good progress on its multi-year plan to reduce debt and streamline its operations. Total debt is down from US$13 billion a few years ago to US$5.7 billion as of the end of Q3 2018. Net debt stands at US$4 billion.

Free cash flow for Q3 2018 came in at US$319 million. Barrick recently said it will look at the possibility of raising the dividend in 2019. The current payout provides a yield of 0.9%.

Full-year 2018 production is on track to be $4.5-5 million ounces at all-in-sustaining costs of US$765-815 per ounce. The addition of Randgold will boost output next year and beyond, as will a number of promising developments that are currently in various phases of completion.

Barrick also has a significant copper business with three large mines.

Should you buy?

Barrick’s stock currently trades for about $17 per share. At the peak in 2011, it was above $50.

Gold prices face some interest rate headwinds, but recent strength suggest other factors in the market could support a move to higher levels in the coming year. A full-blown trade war with China, an ugly Brexit for the U.K., Italy’s financial crisis, and any unexpected decision by president Trump could send investors scrambling to buy gold as a safe-haven trade. In addition, there are rumblings that the Fed might actually have to hit the brakes on rate hikes next year if the economy looks like it might start to rollover sooner than expected.

Even of gold stays at current levels, Barrick stand to deliver solid results, which should provide ongoing support for the stock.

Could it soar to $34?

A major rally in gold would have to occur to drive that kind of upward move in Barrick’s stock price in 2019. At this point, I wouldn’t bet on a 100% surge over the next 12 months, but it wouldn’t be a surprise to see Barrick top the $30 mark in the next 3-5 years.

If you have a contrarian investing style and like gold for the long term, it might be worth adding Barrick to the portfolio while it remains out of favour.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Andrew Walker owns shares of Barrick Gold.

More on Metals and Mining Stocks

Gold bars
Metals and Mining Stocks

Why Alamos Gold Jumped 7% on Wednesday

Alamos (TSX:AGI) stock and Argonaut Gold (TSX:AR) surged after the companies announced a friendly acquisition for $325 million.

Read more »

Nuclear power station cooling tower
Metals and Mining Stocks

If You’d Invested $1,000 in Cameco Stock 5 Years Ago, This Is How Much You’d Have Now

Cameco (TSX:CCO) stock still looks undervalued, despite a 258% rally. Can the uranium miner deliver more capital gains to shareholders?

Read more »

Super sized rock trucks take a load of platinum rich rock into the crusher.
Stocks for Beginners

Cameco Stock and More: 3 TSX Commodity Titans to Watch in 2024

Cameco stock and these others will provide you with growth that goes beyond just a year or two, with all…

Read more »

Handwriting text writing Are You Ready For Tomorrow question. Concept meaning Preparation to the future Motivation Stand blackboard with white words behind blurry blue paper lobs woody floor.
Stocks for Beginners

3 Reasons to Buy Lundin Stock Like There’s No Tomorrow

Lundin stock (TSX:LUN) has been killing its production of copper and plans on blowing its records out of the water…

Read more »

Gold bars
Stocks for Beginners

TSX Materials in March 2024: The Best Stock to Buy Right Now

Materials have been quite volatile, though the price of gold has surged to all-time highs. That makes this stock a…

Read more »

Gold bars
Metals and Mining Stocks

Will Gold Stocks Rally in 2024?

Down almost 30% from all-time highs, Franco-Nevada is a gold mining stock trading at a discount to consensus price target…

Read more »

A miner down a mine shaft
Stocks for Beginners

Canadian Mining Stocks: Buy, Sell or Hold?

Canadian mining stocks have seemed like such a strong investment, but with shares down significantly this year, what should we…

Read more »

Gold king in chess game face with the another silver team on black background (Concept for company strategy, business victory or decision)
Stocks for Beginners

Great News for Gold Stock Investors!

Gold has hit an all-time high! Which is good news for some gold stocks, and really good news for others.

Read more »