May 29, 2022 8:12 AM

Barrick Gold’s future remains uncertain despite mega-mining merger with Randgold

Barrick Gold was the main proponent of the biggest mining merger in the world but was it enough to make it a buy?

/ Published 3 years ago

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Earlier this year, Barrick Gold (TSE:ABX) announced a mega-mining merger with Randgold. It created the world’s largest gold miner with a total combined asset of $18 billion where 76 percent of the stake of Randgold being directed to Barrick Gold. With the new year ahead of it, how will Barrick Gold perform now that it is part of something bigger?

According to analysts at rating agency Fitch, the asset divestment and mothballing could hinder the production output of Barrick Gold instead of helping it. The company’s production output went from 5.3 million ounces in 2017 to 4.5-5 million ounces in 2018. Moreover, its huge debt remained at a high of $6.4 billion during the first quarter last year.

Barrick Gold is also burdened by several legal, regulatory, permitting and production issues. For starters, its multibillion-dollar Pascua-Lama copper-gold project was once again put on hold in April. Another issue worth looking into is the company’s legal battle in its Veladero mine in Argentina. It resulted in a fine of $9.8 million and some of the company’s employees were criminally charged.

On the upside, Barrick Gold’s merger with Africa-based Randgold is still something investors could look forward to. With it, the company was able to secure a place in the developing markets in the US and Canada as well as in emerging markets in Africa and Latin America. Even in this, Barrick Gold is facing a few issues as lower gold prices and could result in lower profits.

The gold rally could save Barrick Gold

Stocks under the industry have underperformed since 2011 but the chances of a new gold rally is still possible. In the US, gold prices surged from $1,170 per ounce to $1,280. While this may not sound much, analysts are expecting around 10 percent growth in the coming months.

The gold sector in Canada is well on its way to recovery. (Source)

The gold sector in Canada is well on its way to recovery as well. Companies have worked hard to reduce debt in the past years through better and efficient practices. Because of this, companies have excellent balance sheets and are already in good condition. All that is left now is for Canadian gold prices to once again rise.

Outlook on major players like Barrick Gold remains pessimistic, however. The company currently trades at CA$18.50 per share which is a far cry from its CA$29 in July 2016. This is because gold prices were relatively higher then. Since Barrick Gold has secured a major market in Africa, it already has a solid production line to support cash flow. If gold prices surge, then Barrick Gold’s share could see a significant increase.

Ever since Barrick Gold merged with Randgold, it became one of the top mining companies to earn. Initial outlook on the company remains hampered by its current legal and regulatory issues but if gold prices to make their projected surge in the coming months, investors will have huge gains ahead of them.

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