This $40 Gold Mining Stock Could Turn $5,000 Into a Fortune

Barrick Mining (NYSE: B) is trading at around $40 per share, down more than 6% so far this year and well below the stock's 52-week high of $54.69.

There are solid reasons for the slump. The spot price of gold is down almost 4% from its record highs in January. The likelihood of an interest rate increase has also put pressure on gold prices because the precious metal becomes less attractive as an investment compared to safe, guaranteed yields on low-risk assets such as US Treasuries.

Barrick had other issues that weighed on its stock, but although it appears to have addressed those concerns, the gold mining stock remains underpriced relative to competitors. Here are three reasons why investing $5,000 now in Barrick stock could turn into a fortune.

Image source: Getty Images.

Let's start with its dividend

If you spent $5,000 on Barrick Mining at its current share price, that would bring you roughly 123 shares. The company's dividend yield is around 2.23% and it has increased by 775% over the past decade. It is well-covered with a cash dividend payout ratio of 27.17%, so the dividend is likely to increase.

If you had invested $5,000 in Barrick a decade ago, and reinvested the dividends, you would have $14,045.76 today.

The market hasn't factored in recent wins

Barrick operates in several complex emerging jurisdictions, such as Mali and Pakistan, known for political, tax, and licensing uncertainties. Markets tend to attach a permanent valuation penalty to earnings generated in higher-risk countries.

Barrick trades for a lower valuation than its mining peers, just under 12 times forward earnings and 11 times trailing earnings. On Sept. 27, Barrick averted a strike by workers at its Loulo-Gounkoto gold complex in western Mali. On Oct. 5, Barrick reported it had signed a new 15-year licensing agreement for the North Mara Gold Mine in Tanzania. The mine averages 8,000 tonnes of ore in production daily.

The company also settled its lawsuit with Newmont (NYSE: NEM), paving the way for Barrick to spin off its North American assets into a new company sometime next year and garnering a $1.95 billion payment from Newmont.

Strong balance sheet, rising returns

Barrick maintains strict financial discipline and an investment-grade balance sheet.

In the second quarter, Barrick reported net earnings of $1.22 billion, up 50%, year over year. Gold production was 796,000 ounces, up 11% over the prior quarter. Adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) were $2.55 billion, up 51%, year over year, and adjusted EBITDA margin was 60%.

The company has $5.93 billion in cash and only $4.62 billion in debt, bolstering its ability to fund operations and growth. Barrick also has significant copper deposits, with 56,000 tonnes produced in the second quarter. The price of copper has shot up more than 16% this year due to rising industrial demand driven by electric vehicles and by AI, power grids, advanced data centers, and semiconductor manufacturing facilities requiring large volumes of copper wiring and busbars.

James Halley has positions in Newmont. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.