Analyst Provides Early Glimpse at Gold Major After Merger

In a Feb. 14 research note, analyst Kerry Smith reported Barrick Gold Corp.'s (ABX:TSX; GOLD:NYSE) 2018 financials were a "slight miss," but 2019 guidance is "in line with our expectations."

Smith summarized the salient figures. Barrick's 2018 cash flow was $1.94 billion, or $1.66 per share ($1.66/share). This was slightly below the Haywood and consensus forecasts of $1.80 and $1.72/share, respectively.

Adjusted earnings for 2018 were $0.35/share, on par with the consensus forecast of the same amount.

Concerning Q4/18 production, output from Barrick's pre-merger assets was 1.26 million ounces (1.26 Moz) at an all-in sustaining cost (AISC) of $788 per ounce ($778/oz), which was 3% below Haywood's projected $815/oz. Full year-2018 production totaled 4.53 Moz at an AISC of $806/oz.

In comparison, the new Barrick's production guidance for 2019 is 5.1–5.6 Moz at a cash cost of $650–700/oz and an AISC of $870–920/oz. Those numbers fit with Haywood's projections for this year—5.5 Moz production at an average cash cost of $655/oz and an AISC of $875/oz. Based on those numbers, the gold miner should generate cash flow of $1.65/share in 2019.

At year-end 2018, Barrick's cash balance was $1.57 billion. Following the Jan. 1, 2019, close of the merger with Randgold, it was $2.3 billion. The company's debt is $5.7 billion, and its targeted quarterly dividend is $0.04/share.

Regarding the merging of Barrick and Randgold, Smith highlighted that new CEO Mark Bristow and the other executives are "pushing ahead," and beginning to integrate the operating teams. "Execution of their vision," Smith indicated, "will be the next medium-term deliverable," now that the balance sheet is solid.

Management intends to reduce costs, grow via exploration and deliver a sustainable, increasing dividend. They have an "enviable track record of disciplined growth and operating skills, and the biggest risk is transferring this model into a much larger organization," the analyst added.

Now that Bristow is CEO, Barrick's stock has begun trading at a multiple, Smith noted. Therefore, Haywood, in its model of the Buy-rated miner, increased its multiple, which led to a higher target price on Barrick, $19/share versus $18. "We recommend accumulating shares," added Smith.

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Disclosures from Haywood Securities, Junior Exploration Report, February 14, 2019

Haywood Securities, or certain of its affiliated companies, may from time to time receive a portion of commissions or other fees derived from the trading or financings conducted by other affiliated companies in the covered security. Haywood analysts are salaried employees who may receive a performance bonus that may be derived, in part, from corporate finance income.

Haywood Securities, Inc., and Haywood Securities (USA) Inc. do have officers in common however, none of those common officers affect or control the ratings given a specific issuer or which issuer will be the subject of Research coverage. In addition, the firm does maintain and enforce written policies and procedures reasonably designed to prevent influence on the activities of affiliated analysts.

Analyst Certification: I, Kerry Smith, hereby certify that the views expressed in this report (which includes the rating assigned to the issuer’s shares as well as the analytical substance and tone of the report) accurately reflect my/our personal views about the subject securities and the issuer. No part of my/our compensation was, is, or will be directly or indirectly related to the specific recommendations.

Important Disclosures
The following Important Disclosures apply for Juggernaut Exploration:
▪ Haywood Securities, Inc. has reviewed lead projects of Barrick Gold Corp. and a portion of the expenses for this travel have been reimbursed by the issuer.
Other material conflict of interest of the research analyst of which the research analyst or Haywood Securities Inc. knows or has reason to know at the time of publication or at the time of public appearance: n/a.

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