Barrick Cuts Outlook Again, but May Have Bottomed

Source: Adrian Day 12/04/2024

Two of Global Analyst Adrian Day’s holdings held annual investor days, with somewhat subdued forecasts. Today, Day reviews these companies’ forecasts as well as developments at other companies on his list.

Barrick Gold Corp. (ABX:TSX; GOLD:NYSE) revised its five-year production targets at its annual Investor Day last week. It expects a recovery in gold output from a low of 3.9 million ounces this year to 4.7 million by 2029.

After the Barrick/Randgold merger in 2019, the combined company produced 5.5 million ounces; production has declined each year since to what is anticipated to be a low this year. Not only has production declined, but each year, Barrick has revised downwards its long-term targets while repeatedly failing to meet the current year’s guidance.

Copper output, however, is expected to more than double, driven by the Lumwana Super Pit expansion in Ghana and later the commencement of production at Reko Diq in Pakistan. However, the company increased its estimated capital for Reko Diq, which will hurt its free cash flow. Barrick emphasizes organic growth over M&A, and though it has some sizeable projects in the pipeline, it will struggle to maintain production growth internally over time.

Realistic Guidance Would Help the Stock

In addition to the long-term reductions, Barrick reduced production and increased cost guidance for next year. Overall, lower production and higher cost guidance than previously expected may present more realistic and achievable targets, which would be a positive for the company over the longer term.

The continual missing of targets has seriously hurt confidence in the company and the share price. CEO Mark Bristow reiterated this year’s guidance, albeit at the lower end of the range, despite being offered plenty of opportunity to review the guidance.

As one analyst from a large firm wrote, “can’t really hand your hat on the company’s ability to hit guidance.” If it fails to do so, when results are published in January, that would hurt the stock again. However, with gold production turning around and more realistic guidance for both next year and the five-year outlook, Barrick could finally gain investor confidence.

Mali Arrests Employees, Again

Separately, four Barrick employees were jailed in Mali, the second time in three months, as the military junta puts pressure on companies to pay back taxes they claim are owed and come to new agreements on sharing revenue.

Barrick paid $85 million in October, but the government is demanding an additional $417 million, which Barrick denies is owed. Barrick’s Loulo-Gounkoto mine in Mali accounts for approximately 8% of its NAV. The stock is inexpensive, particularly on an asset basis, trading at around 0.6x NAV against over 1x for its peers, with a strong balance sheet.

It is underheld among institutions. Buy.

Nestlé Discusses New Undramatic Strategy

Nestlé SA (NESN:VX; NSRGY:OTC) presented what it said was a “clear plan to drive operational excellence, unlock the full potential of the portfolio, and strengthen foundational capabilities.”

At its recent Capital Markets Day, the company said it planned to step up cost savings while announcing it would spend 9% of sales on advertising and marketing. It reiterated its revised full-year guidance while saying that it expected a slight improvement in its sales for 2025. It does not expect either acquisitions or disposals next year.

The company plans to make its water and “premium beverages” a stand-alone division within the company in order to unlock value. And it is focused on turning around two underperforming units, U.S. Frozen Foods and the Health Science division. While there was nothing dramatic announced at the presentation, it was generally positive, with a focus on enhancing sales and controlling costs.

The company is solid, with sales in over 100 countries and a strong balance sheet. The stock has performed badly of late, down 40% from the beginning of 2022, as it missed guidance and seemed to falter in its strategic direction, leading to a change in CEO in September.

The stock is now back to where it was in early 2018. It is undervalued and sporting at 3.9%, its highest yield in at least 30 years. The previous peak was just under 3% in 2012. It has increased its dividend every year back to 1996, when it remained flat.

We would steadily accumulate at these levels and may become more aggressive once the new strategy is seen to pay dividends in sales growth and increased profits.

A Strategic Investor Buys 9.9% of Fox

Fox River Resources Corp. (FOX:CNSX) announced a new strategic investor had acquired 9.9% of the outstanding shares in a private placement at 0.40.

The unnamed investor has top-up rights in the event of further equity financings, as well as the right to a board member (which it is not taking up at present).

The investor has not been named.

We view this as a positive, providing validation from a large investor as well as adding to the treasury ($2.9 million) to advance the company’s Martison Phosphate Project in Ontario.

Buy; it is thinly traded, so do not chase.

Orogen’s Revenues Up Again

Orogen Royalties Inc. (OGN:TSX.V) reported third-quarter revenue from its Ermitaño royalty of $2.1 million, up from $1.6 million in the same quarter last year.

Cash from operating activities also increased from $715,000 to over $948,000.

Net income declined, however, due to a write-down in the carrying value of projects sold.

First Majestic Silver Corp. (FR:TSX; AG:NYSE; FMV:FSE), the operator of the Ermitaño mine, continues to aggressively explore Orogen’s royalty land.

Buy on any weakness in the coming period.

Lara Boosts Cash From Warrants

Lara Exploration Ltd. (LRA:TSX.V) raised just over CA$3 million from the forced early exercise of warrants, bringing its cash to CA$5.6 million.

With anticipated near-term revenue from the Celesta copper project, which recently resumed mining, Lara is in a strong position to complete and advance its flagship Planalto copper project.

Buy.

Cobre Restart Would Revive Franco

Franco-Nevada Corp. (FNV:TSX; FNV:NYSE) heard potentially positive news when Panama’s president José Mulino, who has stated that he wants the Cobre Panama mine (on which Franco holds a stream) to re-open, said the government would focus on the mine’s future early next year, after other priorities have been decided.

This would include an environmental audit, partly to assuage public concerns. The mine has been closed for a year now after the Supreme Court ruled the concession unconstitutional, following public protests, despite a revised agreement being approved by the government and congress.

When operational, the $6 billion mine, employing over 40,000 people, represented about 5% of the country’s GDP. In 2023, despite lower production in the last quarter of the year amid the dispute, the mine generated almost 129,000 ounces for Franco, representing about 19% of its total revenue. Since Franco subsequently wrote off its entire investment — and the stock price reflects zero revenue from the mine — it now has only upside from any restart of the mine.

With $1.4 billion in cash, and a well-diversified revenue stream and pipeline, Franco is a solid company, currently trading at the low end of its historical valuations.

Buy.

TOP BUYS this week, in addition to the above, include Kingsmen Creatives Ltd. (KMEN:SI), Pan American Silver Corp. (PAAS:TSX; PAAS:NASDAQ), and Metalla Royalty & Streaming Ltd. (MTA:TSX.V; MTA:NYSE American).

JANUARY BRINGS TWO EVENTS First, it’s the in-person Vancouver Resource Investment Conference on January 19 and 20. Confirmed speakers include Robert Kiyosaki, Danielle DiMartino Booth, and Grant Wiliams (plus many more). You can find more information and obtain your tickets here.

The next On the Move virtual webinar with ASI will be on the evening of January 23, with special guest Brett Eversole, a lead analyst at Stansberry Research. We shall review the year past and look ahead in what promises to be a most informative discussion.

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Important Disclosures:

1. As of the date of this article, officers and/or employees of Streetwise Reports LLC (including members of their household) own securities of Barrick Gold Corp., Fox Riv Res Corp., Orogen Royalties Inc., Lara Exploration Ltd., Franco-Nevada Corp., Pan American Silver Corp., and Metalla Royalty & Streaming
2. Adrian Day: I, or members of my immediate household or family, own securities of: All. My company has a financial relationship with: All. I determined which companies would be included in this article based on my research and understanding of the sector.
3. Statements and opinions expressed are the opinions of the author and not of Streetwise Reports, Street Smart, or their officers. The author is wholly responsible for the accuracy of the statements. Streetwise Reports was not paid by the author to publish or syndicate this article. Streetwise Reports requires contributing authors to disclose any shareholdings in, or economic relationships with, companies that they write about. Any disclosures from the author can be found below. Streetwise Reports relies upon the authors to accurately provide this information and Streetwise Reports has no means of verifying its accuracy.
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Adrian Day’s Global Analyst is distributed for $990 per year by Investment Consultants International, Ltd., P.O. Box 6644, Annapolis, MD 21401. (410) 224-8885. www.AdrianDayGlobalAnalyst.com. Publisher: Adrian Day. Owner: Investment Consultants International, Ltd. Staff may have positions in securities discussed herein. Adrian Day is also President of Global Strategic Management (GSM), a registered investment advisor, and a separate company from this service. In his capacity as GSM president, Adrian Day may be buying or selling for clients securities recommended herein concurrently, before or after recommendations herein, and may be acting for clients in a manner contrary to recommendations herein. This is not a solicitation for GSM. Views herein are the editor’s opinion and not fact. All information is believed to be correct, but its accuracy cannot be guaranteed. The owner and editor are not responsible for errors and omissions. © 2023. Adrian Day’s Global Analyst. Information and advice herein are intended purely for the subscriber’s own account. Under no circumstances may any part of a Global Analyst e-mail be copied or distributed without prior written permission of the editor. Given the nature of this service, we will pursue any violations aggressively.

( Companies Mentioned: ABX:TSX; GOLD:NYSE, FOX:CNSX, FNV:TSX; FNV:NYSE, LRA:TSX.V, NESN:VX; NSRGY:OTC, OGN:TSX.V, )

Source: https://www.streetwisereports.com/article/2024/12/04/barrick-cuts-outlook-again-but-may-have-bottomed.html