M&A activity may soon start to pay off for GOLD shares
Known as the second largest gold producer in the world, Barrel gold (NYSE:GOLD) is a Canada-based mining company that has gone through some notable changes over the past three years which could cause GOLD stock to rise significantly.
Barrick shares have lost almost a third of their value since the same period last year. The reasons are still unknown, but I suspect this is due to disappointing gold prices, capital outlays in recent acquisitions, or perhaps global supply chain issues.
However, key key factors suggest that the stock may soon outperform the industry and the market as a whole. So, I am extremely bullish on the GOLD stock and believe it is only a matter of time before the rest of the market sees its potential as well.
Management changes, acquisitions and joint ventures
In 2019, Barrick Gold and Randgold merged, creating the largest gold mining company on the planet at the time. Along with the merger, a new CEO has been appointed: Mark Bristow. Bristow has spent most of his career at Randgold, where he specialized in negotiating with tight budgets. Bristow was instrumental in Randgold’s pre-merger success, and many believe he will be the one to take Barrick Gold to a new level.
The merger generated a more sustainable revenue line with constant 3-year annual revenue and EBIT growth rates of 17.93% and 32.17%, respectively. In 2019 alone, the company’s operating profit increased by 30%.
The merger also laid a platform for an exploration company. In 2019, Barrick and Newmont (NYSE:NEM) has partnered to create a joint venture called “Nevada Gold Mines” (NGM) which aims to take advantage of Nevada’s surface and deep gold mines. She’s still a potential cash cow for Barrick, who owns 61.5% of the project.
The pandemic and the lockdowns disrupted the NGM project. And when those bottlenecks ended, maintenance was required, which brought down Barrick’s second quarter production of 9%. But maintenance is a temporary issue, and I think Barrick will benefit greatly from the NGM project in the future.
Key indicators for the OR action
Barrick has succeeded in drastically reducing its debt burden, cutting its debt-to-equity ratio by almost half to 11.4% since 2019. At the same time, the company has also improved its capital spending by 20.07% over the past year. Investment and leverage ratios generally move in opposite directions, but an operating margin of 39.98% and a 43.14% increase in operating cash flow over the past year means Barrick’s generates high-quality profits, which allows him to pay off his debt and invest in projects simultaneously.
Due to its sublime profitability ratios, Barrick now has an interest coverage ratio of 16.92. This ratio allows GOLD to take on significant debt instead of issuing additional shares if it wishes to develop further. It is therefore unlikely that shareholders will be diluted anytime soon.
Why buy a gold stock now?
Gold prices have not experienced the same kind of inflation help as other commodities over the past 18 months, and it is suggested that they will decline in 2022 due to an anticipated return. up over 10 years. However, Barrick Gold has allocated most of its capital at a gold price of less than $ 1,200 an ounce, which gives its profit margins significant leeway. For these reasons, I think investors should view Barrick Gold differently from other gold mining stocks; it’s a business that thrives on high margins.
At the date of publication, Steve Booyens did not hold any long or short position in any of the securities mentioned. The opinions expressed in this article are those of the author, subject to the publication guidelines of InvestorPlace.com.
Steve the boys co-founded Pearl Gray Equity and Research in 2020 and has been responsible for equity research and public relations ever since. Prior to founding the company, Steve worked in various finance roles in London and South Africa, and his articles are published on various reputable web pages such as Seeking Alpha, Benzinga, Gurufocus, and Yahoo Finance. Steve’s content for Investor place includes stock recommendations, with occasional articles on crowdfunding, cryptocurrency, and ESG.