EUR 850.00 For Business Accounts Only

Morningstar | Barrick Maintains Full-Year Outlook With No Major Surprises in 1Q; Shares Fairly Valued. See Updated Analyst Note from 08 May 2019

There were few surprises in Barrick’s first quarter. Production of nearly 1.4 million ounces was 8% higher than the fourth quarter of 2018, with contributions from the Randgold mines offsetting production declines in Barrick’s legacy portfolio, particularly at Cortez. All-in sustaining costs rose to $825 per ounce from $788 per ounce in the fourth quarter of 2018 due to a combination of cost inflation and mix shift from the acquired assets.

Management maintained nearly all its 2019 guidance figures, as the company expects to produce 5.1 to 5.6 million gold ounces at all-in sustaining costs, or AISC, of $870 to $920 per ounce. First-quarter production of nearly 1.4 million ounces at AISC of $825 per ounce put it well within reach of its targets. We forecast production of nearly 5.4 million ounces at AISC below $860 per ounce.

We’ve largely maintained our forecast. Accordingly, we've maintained our fair value estimates of $14 per share and CAD 19 per share. Our no-moat rating for the company is unchanged. At current share prices, we see limited risk-adjusted upside at this time. The market seems to be appropriately valuing the company’s near-term value catalysts from the Randgold acquisition synergies and the Nevada joint venture synergies.

After last raising the interest rate in December 2018, the Fed has paused its increases, leaving the federal-funds target rate at a range of 2.25% to 2.50%. Amid signs of a slowing economy including slowing consumer spending and business investment, the Federal Open Market Committee, or FOMC, now sees no rate hikes in 2019. The dot plot has reflected a meaningful change in expectations, as the December dot plot implied two rate hikes this year.

The market view is even more bearish. Current interest rate options not only imply no chance of a rate hike but more than 50% chance that there is at least one rate cut by the end of 2019.

All else equal, the turn in the Fed’s sentiment on its rate hike path has reduced the downward pressure on investment demand for gold that we’ve observed over the last few years. However, the FOMC would likely return to rate hikes if inflation were to strengthen due to stronger economic growth. Although pressure on investment demand for gold has softened, we don’t expect a strong resurgence in the near future.

On the back of stabilizing investment demand, gold prices have settled in the high-$1,200 to low-$1,300 per ounce range, falling roughly in line with our forecast for a nominal gold price of $1,300 per ounce by 2020.