The reasons for the upgrade are provided in a BMO
Capital Markets report.
In a July 3 research note, analyst Andrew Kaip reported that BMO Capital
Markets upgraded Barrick Gold Corp. (ABX:TSX; GOLD:NYSE) to an Outperform
rating on the potential of its and Newmont Goldcorp's Nevada assets, recently
consolidated through a joint venture agreement between the two companies.
Additionally, BMO is resuming coverage on Barrick, now that the
restriction period related to the transaction is over, with the higher rating
and a US$20 per share target price. The current share price is about
US$16.51.
The analyst reviewed the deal and its potential benefits for Barrick. He
highlighted that the resulting synergies from the combined Nevada assets
"unlock value" and though integration risks exist, the near-term
benefits outweigh those.
According to the terms of the deal, which closed on July 1, Barrick's
ownership of the Nevada assets is 61.5% and it will be their operator.
Newmont Goldcorp's stake is 38.5%. "The intention of the joint
venture," Kaip explained, "was to unlock upward of $5 billion in
pretax net present value (NPV) over the next 20 years, including an estimate
of $500 million of pretax synergies over the first five years."
As for expected synergies, BMO's analysis determined they could amount to
about $1.1 billion in NPV5% for Barrick simply from a drop in all-in
sustaining costs to about $685 per ounce from $775, Kaip pointed out. When
BMO factored into its company model the synergies' effect it calculated on
Barrick, the gold miner's NPV5% rose by about 8% to $8.96 and equated to more
than $250 million in free cash flow per year going forward.
"Given the positive momentum from the formation of the Nevada joint
venture and ongoing cost optimization stemming from the Randgold
merger," Kaip noted that BMO expects Barrick's stock price to outperform
its peers over the next 12 months. "The real value driver, in our view,
is Nevada."
[NLINSERT]
Disclosure:
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5) From time to time, Streetwise Reports LLC and its directors, officers,
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Disclosures from BMO Capital Markets, Barrick gold, July 3, 2019
IMPORTANT DISCLOSURES
Analyst's Certification
We, Andrew Kaip, hereby certify that the views expressed in this report
accurately reflect my personal views about the subject securities or issuers.
I also certify that no part of our compensation was, is, or will be, directly
or indirectly, related to the specific recommendations or views expressed in
this report.
Analysts who prepared this report are compensated based upon (among
other factors) the overall profitability of BMO Capital Markets and their
affiliates, which includes the overall profitability of investment banking
services. Compensation for research is based on effectiveness in generating
new ideas and in communication of ideas to clients, performance of
recommendations, accuracy of earnings estimates, and service to clients.
Analysts employed by BMO Nesbitt Burns Inc. and/or BMO Capital Markets
Limited are not registered as research analysts with FINRA. These analysts
may not be associated persons of BMO Capital Markets Corp. and therefore may
not be subject to the FINRA Rule 2241 restrictions on communications with a
subject company, public appearances and trading securities held by a research
analyst account.
Company Specific Disclosures
Disclosure 1: BMO Capital Markets has undertaken an underwriting liability
with respect to Newmont Goldcorp within the past 12 months.
Disclosure 2: BMO Capital Markets has provided investment banking services
with respect to Newmont Goldcorp within the past 12 months.
Disclosure 3: BMO Capital Markets has managed or co-managed a public offering
of securities with respect to Newmont Goldcorp within the past 12 months.
Disclosure 4: BMO Capital Markets or an affiliate has received compensation
for investment banking services from Newmont Goldcorp within the past 12 months.
Disclosure 5: BMO Capital Markets or an affiliate received compensation for
products or services other than investment banking services within the past
12 months from Barrick Gold and Newmont Goldcorp.
Disclosure 6A: Newmont Goldcorp is a client (or was a client) of BMO Nesbitt
Burns Inc., BMO Capital Markets Corp., BMO Capital Markets Limited or an
affiliate within the past 12 months: A) Investment Banking Services
Disclosure 6C: Barrick Gold and Newmont Goldcorp are clients (or were
clients) of BMO Nesbitt Burns Inc., BMO Capital Markets Corp., BMO Capital
Markets Limited or an affiliate within the past 12 months: C) Non-Securities
Related Services.
Disclosure 9B: BMO Capital Markets makes a market in Barrick Gold and Newmont
Goldcorp in United States.
Disclosure 16: A research analyst has extensively viewed the material
operations of Newmont Goldcorp.
Disclosure 17: Newmont Goldcorp has paid or reimbursed some or all of the
research analyst's travel expenses.
For Important Disclosures on the stocks discussed in this report,
please click here.
