Barrick Gold: Opportunity or tragedy?

There was a time when the Barrick Gold share (TSX ABX / NYSE GOLD) stood for an entire sector. Investors looked to it when they wanted to get a feel for how the gold mining sector would develop in the near future. Those days are now over, because if you approached Barrick Gold shares in the same way today, hardly any investor would think that the gold mining sector is currently facing a revaluation.

There is currently not much sign of this optimistic view at Barrick. The stock has been trapped in a tough downward trend for months, which can at best be interpreted as a sideways movement. If a harsher judgment is made, it is that a bottom has been attempted but has not yet been successfully completed.

Under this premise, the Barrick shares can hardly be judged as anything other than a tragedy. As paradoxical as this may sound at first, this is currently the opportunity, as there is a certain gap between the chart, which reflects investors’ assessments, and the fundamental situation. Investors who want to bet that this gap will be closed again in the coming months therefore may have a good opportunity.

Barrick Gold benefits from rising copper and gold prices

A positive aspect for Barrick is that the company not only mines gold, but also copper. This means that Barrick Gold is not only benefiting from a gold boom that may just be starting, but also from the energy transition. After all, this is guaranteed to fail without a secure supply of copper.

As both the gold and copper prices are currently trending upwards, Barrick Gold’s shares should also benefit and rise, should. But they are not. Since the end of 2022, the copper price has risen by almost 50 percent. However, Barrick Gold is still trading at the same level as back then. The reasons for Barrick Gold’s unusual chart path could therefore lie within the company itself.

It is undeniable that the company is facing major challenges. Major investments are pending in both the Lumwana copper mine in Zambia and in Pakistan. Rumors that Barrick is planning a takeover of the ailing First Quantum are also a burden. Despite these challenges, however, Barrick’s management succeeded in increasing the company’s profit by 12% to USD 0.84 per share in the last financial year.

Since then, the price of gold in particular has continued rising. There is therefore reason to believe that Barrick Gold’s profits have increased further. The analysts’ guild assumes that Barrick will be able to increase its profits by 20 percent this year and 20 percent next year. Barrick currently has a P/E ratio of around 16, which means it is not a bargain by industry standards, but on the other hand the share is not overpriced either.

In turn, this means that the downside risks are manageable, while upside potential is certainly present due to the rise in gold and copper prices. Moreover, if a company grows by 20 percent per year, the potential is clearly on the upside rather than the downside. Even if the recent development of the share price has undoubtedly been a tragedy, there is still an attractive opportunity for a price increase of 50 percent or more. Investors must now decide what to make of this opportunity – and keep the inherent risks in mind.