Why Shares of Barrick Mining Jumped Close to 12% This Week
Key Points
Barrick Mining is increasing production while the price of gold is rising.
It is seeing growing cash flow and returning cash to shareholders through share repurchases.
The stock is essentially a bet on what direction the price of gold will go.
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Shares of gold and copper miner Barrick Mining (NYSE: B) shot up 12% this week, according to data from S&P Global Market Intelligence. The company reported earnings earlier in the week, showing strong cash-flow generation and rising production levels. The stock is up over 100% in the last six months.
Here's why Barrick Mining rose this week, and whether the stock is a buy for investors right now.
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Growing cash flows, rising gold production
The third quarter for Barrick Mining was phenomenal. Gold production rose 4%, but due to the soaring price of the commodity, free cash flow was up 274% to $1.5 billion in the quarter. Annualized, that is $6 billion in free-cash-flow generation. Using this cash, management has now repurchased $1 billion of its outstanding shares year to date, bringing its shares outstanding down and raising earnings per share (EPS). It also raised the quarterly dividend payment by 25%.
Barrick believes it will have even more production coming online shortly at its Fourmile project, which it 100% owns and which has the potential to be one of the largest gold discovery projects in recent memory. This rising production and soaring price of gold -- up 116% in the past five years and soaring in recent months -- is why investors are bullish on Barrick Mining right now. Gold prices began to recover this week, which was another factor lifting Barrick Mining stock after this earnings result.
Image source: Getty Images.
A bet on Barrick is a bet on the price of gold
Barrick Mining currently has a market cap of around $60 billion. Compared to its quarterly cash-flow generation of $1.5 billion, this is a cheap price-to-free-cash-flow (P/FCF) of 10 (annualizing the quarterly figure). If the price of gold keeps going up, Barrick Mining is set to generate a ton of cash in the next few years, which would make the stock price cheap for those buying today.
However, gold has a tendency to bust after going through a boom. Falling gold prices would lead to declining cash flow and likely a declining share price for Barrick Mining stock. The company is essentially a bet on the price of gold. If you are a believer in rising gold prices, then Barrick Mining could be a good stock to buy here. If not, it is best to avoid this stock for your portfolio.
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Brett Schafer has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.
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