ABX.TO - Barrick Gold Corporation
| Previous Close | 28.09 |
| Open | 28.50 |
| Bid | 26.88 x 0 |
| Ask | 26.91 x 0 |
| Day's Range | 26.82 - 28.68 |
| 52 Week Range | 15.72 - 29.93 |
| Volume | 4,426,707 |
| Avg. Volume | 3,688,101 |
| Market Cap | 47.844B |
| Beta (5Y Monthly) | 0.08 |
| PE Ratio (TTM) | 11.92 |
| EPS (TTM) | 2.26 |
| Earnings Date | Feb 11, 2020 |
| Forward Dividend & Yield | 0.37 (1.33%) |
| Ex-Dividend Date | Feb 26, 2020 |
| 1y Target Est | 13.81 |
- Bloomberg
From Seafood to Zinc, Virus Sours the Outlook for Canada CEOs
(Bloomberg) -- A miserable end to 2019 is turning into a gloomy start to 2020 for some of Canada’s biggest exporters.Business leaders waved good riddance to last year after global trade tensions and a railway strike stymied business and exports. Economic growth in the fourth quarter is expected to be a measly 0.3% on an annualized basis when data is released on Friday, according to estimates compiled by Bloomberg.While a tentative trade deal between China and the U.S. had boosted optimism, that is fading amid the coronavirus contagion and more disruptions on the country’s rails, this time from protesters opposed to a natural gas pipeline:Corporate executives are only beginning to get a handle on the damage, and much will depend on how quickly the virus can be brought under control so that normal trade and travel can resume. Here are thoughts so far from Canadian companies doing business overseas.Nutrien Ltd.Chuck Magro, chief executive officer of the world’s largest supplier of crop nutrients, is watching the impact of the coronavirus “hour by hour.” The biggest effects so far have been on potash, he said.“We believe that the contract negotiations will move now from the first quarter to the second quarter and that’s simply because most of the buying committee, large organizations are working from home,” he said at an industry conference Wednesday. “Our sales organizations in China are working from home. They’re not meeting.”Potash is stuck at its China port because the supply chain is down, he said.“Just a couple of days ago the Chinese government authorized for the first time in five years the use of strategic reserves in potash. We interpret that as an indication that China is worried they don’t have enough potash for the spring season.”In the long run, that will be good for the potash industry as reserves will need to be restored, he said. Agriculture is not correlated to economic growth, he added. “The old adage that people need to eat still holds.”Teck Resources Ltd.Bad weather, blockades, and the virus created “the perfect storm” for the Vancouver-based producer of coal, copper and zinc and Canada’s largest railway customer, CEO Don Lindsay said.“Commodity prices were negatively impacted by global economic uncertainty in 2019. This has continued into 2020,” he told analysts on Feb. 21. “There were some signs of improvement in December and early January with an agreement on a U.S.-China Phase 1 trade deal but then the coronavirus emerged and the full impact of the virus is still unknown.”Before the virus, Lindsay said, the company’s plan was to sell at least one asset this year, possibly using the capital for share buybacks. “With coronavirus still prevailing, I think most people are going to...wait and see how that shakes out. It’s still unknown what the long-term effect is, not just the disease itself,” he said.The miner’s shares are down 39% this year.Lululemon Athletica Inc.Most of Lululemon’s 38 stores in China remain closed since first shutting down due to the virus on Feb. 3., though some are coming back on a reduced schedule, CEO Calvin McDonald said.“The safety of our people is our highest priority, and we are adjusting store operations based upon the recommendations of local authorities,” McDonald said in a statement on Feb. 21.The Vancouver-based company’s $1 billion international sales opportunity is being led by China, according to Bloomberg Intelligence. “China’s performance- and sports-inspired apparel market is worth almost $87 billion, and management aims to connect with 400 million active millennials,” analysts Poonam Goyal and Abigail Gilmartin said in a report.McDonald said he remained confident in the long-term opportunities in China. The company will provide an update on the impact in its earnings report for the fiscal fourth quarter, which ended Feb. 2. That call is expected next month.Lobster Council of CanadaThe number of cargo planes flying into Halifax, Nova Scotia, and Moncton, New Brunswick, to be loaded with lobster bound for China has dwindled, said Geoff Irvine, executive director of the industry group. While the airports would typically see about nine charter flights a week, that has dropped to one a week in the past month, he said.China has become Canada’s second-biggest export market for live, processed and frozen lobster next to the U.S. While February is typically a slower month for sales, lobster companies are storing the additional unsold inventory or sending it to be processed, Irvine said.“The Chinese in general are not going out to eat so they’re not consuming lobster in restaurants,” Irvine said by phone. “That’s hopefully going to change as they go back to work and the quarantines end.”Canada shipped more than C$450 million ($337 million) worth of live lobster to China in 2019, according to Statistics Canada data.Barrick Gold Corp.Barrick is benefiting from its experience with highly contagious diseases such as Ebola to help it deal with the coronavirus, CEO Mark Bristow said in comments following a Bloomberg TV interview at a conference Feb. 24.In addition to expanding its health checks across the entire organization, Barrick is increasing supplies of raw materials such as cyanide and cement at its mines, Bristow said. The company will have three to four months worth of those “consumables” on hand, compared with the one-and-a-half months it normally keeps, he said.“The thing about these epidemics is that you have to respond before they hit you,” Bristow said. “We have an emergency action plan.”\--With assistance from Danielle Bochove.To contact the reporters on this story: Jacqueline Thorpe in Toronto at jthorpe23@bloomberg.net;Jen Skerritt in Winnipeg at jskerritt1@bloomberg.netTo contact the editors responsible for this story: Derek Decloet at ddecloet@bloomberg.net, Divya BaljiFor more articles like this, please visit us at bloomberg.comSubscribe now to stay ahead with the most trusted business news source.©2020 Bloomberg L.P.
- Reuters
AJN shares slump after Barrick moves to block Kibali stake purchase
KINSHASA/TORONTO/JOHANNESBURG (Reuters) - Shares in junior miner AJN Resources tumbled after Reuters reported Barrick Gold the operator of Congo’s biggest gold mine, issued a cease-and-desist notice to block AJN's acquisition of a 10% stake in the mine which it says the deal undervalues. AJN's Canada-listed shares fell 13.9% at Thursday's open, taking losses since Wednesday to 28%. Barrick and AngloGold Ashanti, which each own 45% of the Kibali mine, said they had not been consulted about the deal even though the stake's owner Societe Miniere de Kilo-Moto (SOKIMO) may not transfer or sell its Kibali shares without their approval.
- Reuters
Barrick issues cease and desist notice to AJN over Kibali stake purchase
KINSHASA/TORONTO/JOHANNESBURG (Reuters) - Barrick Gold, the operator of Congo's biggest gold mine, has issued a cease and desist notice to junior miner AJN Resources as it moves to block its acquisition of a 10% stake in the project, which it says the deal undervalues. Barrick and AngloGold Ashanti, which each own 45% of the Kibali mine, said they had not been consulted about the acquisition even though the stake's owner Societe Miniere de Kilo-Moto (SOKIMO) may not transfer or sell its Kibali shares without their approval. The two companies and the chair of state-owned SOKIMO say AJN's planned acquisition was prematurely announced to the market, without notifying stakeholders or securing approval from SOKIMO's board.
- Bloomberg
Rio Tinto Is Digging Mostly Into Its Pocket
(Bloomberg Opinion) -- A combination of hefty dividends and contracting output is turning the world’s second-largest miner into the poster child for a $1.5 trillion industry’s growth quandary.Rio Tinto Group announced a record $3.7 billion final dividend Wednesday, adding to $11.9 billion of cash returns already paid in 2019. Yet it produced less iron ore, copper and aluminum, leaving market prices to lift underlying earnings by 18%. Rio’s Pilbara operations stumbled early in the year. Its Mongolian copper mine, a key source of future production and the basis of a greener portfolio, is now not only sorely overdue and over-budget, but also tangled in international tax arbitration. The $86 billion mining giant isn’t alone. High dividend yields and pedestrian output have begun to define resources heavyweights that used to be known for the exact opposite. Diversified groups relied on their varied sources of cash to expand, but large-scale opportunities are scarcer than ever, and portfolios look far less diverse too, once coal and other less appealing assets have been carved off. At Rio, iron ore now accounts for three-quarters of its underlying Ebitda.For investors, it hasn’t been all bad news. Since Chief Executive Officer Jean-Sebastien Jacques took the helm in 2016, Rio’s total return including reinvested dividends adds up to an impressive 112%, outpacing most rivals.Yet much of that is due to generous payouts. For a company that digs stuff up for a living, this may not be sustainable — especially for one that aims to build a portfolio better aligned with a carbon-light global economy. It may also be an indication of just how hard it is to change. Rio paid shareholders in 2019 more than double its capital expenditure budget for the same year.One priority has been copper. Under Jacques, head of that unit until he became CEO, Rio has said it wants to add more of the red metal as its existing mines age, and will look at other green ingredients, those for rechargeable batteries and the like. Yet a unit set up to consider just such deals hasn’t sealed a single one despite considering more than 200 opportunities, and the company has suffered blow after blow in Mongolia. Its Oyu Tolgoi mine in the South Gobi accounts for only a fraction of Rio’s value today, but could dictate the company’s fortunes. So far, it’s mostly an unhelpful headache. The mine, which Rio holds through Canada-listed Turquoise Hill Resources Ltd., is one of the largest copper deposits around, and could produce an annual 550,000 metric tons of copper, almost as much as Rio produced last year, plus 450,000 ounces of gold. In the parlance of big miners, it moves the needle.Unfortunately, it also encapsulates everything that makes such projects so challenging: tough geography, messy local politics and complex geology. The cost of the largest, underground, portion has swelled to as much as $7.2 billion, and could rise again when a final estimate is published later in 2020. First production may now be be 30 months later than predicted. Fears of a cash call have dragged down Turquoise Hill shares.In the latest development, Rio announced last week it would begin arbitration proceedings to solve a tax dispute. Few arbitration deals yield significant victories — ask Barrick Gold Corp. and Antofagasta Plc, which won a $5.8 billion ruling against Pakistan last year — and they tend to irk host governments, so it’s a worrying sign. The risk is that Oyu Tolgoi becomes Rio Tinto’s own version of Freeport-McMoRan Inc.’s Indonesian pride and joy, Grasberg – wonderful in theory, nearly impossible in practice.Rio won’t drop Mongolia, and not just because of Jacques’ own attachment to the project. A copper option, however long-dated, is valuable, even if the company doesn’t yet jump in to buy out Turquoise Hill minority shareholders.But what then? Rio has manageable debt and ample cash — $9.2 billion in free cash flow in 2019, the highest level in almost a decade — and deals look cheaper as shares in copper-heavy Freeport and First Quantum Minerals Ltd. have roughly halved since 2018. Perhaps, though, not cheap enough to warrant wrestling with Freeport’s U.S. liabilities or First Quantum’s Zambian operations.Rio isn’t shrinking quite yet. It has exploration projects, and iron-ore production already did better in the second half, albeit still short of the company’s ultimate target. Yet with Oyu Tolgoi mired in arbitration and geological complexities, and the economy swiftly shifting, it might be time for Rio to consider just how creative it can get.To contact the author of this story: Clara Ferreira Marques at cferreirama@bloomberg.netTo contact the editor responsible for this story: Matthew Brooker at mbrooker1@bloomberg.netThis column does not necessarily reflect the opinion of Bloomberg LP and its owners.Clara Ferreira Marques is a Bloomberg Opinion columnist covering commodities and environmental, social and governance issues. Previously, she was an associate editor for Reuters Breakingviews, and editor and correspondent for Reuters in Singapore, India, the U.K., Italy and Russia.For more articles like this, please visit us at bloomberg.com/opinionSubscribe now to stay ahead with the most trusted business news source.©2020 Bloomberg L.P.
- Reuters
Gold miners fret about long-term supply even as they boost dividends
Gold miners have largely been boosting dividends to appease long-suffering shareholders rather than funding fresh exploration projects needed to grow production, a strategy that executives are warning may pose long-term risk to the industry. The tension comes as gold prices are at the highest in seven years, near $1,650 an ounce, a surge in part fueled by a flight to safe-haven assets amid rising global concern about the coronavirus. "If you start moving out a number of years, it'll be a challenge" for supply to keep up with demand, AngloGold Ashanti Ltd CEO Kelvin Dushinsky said Tuesday on the sidelines of the BMO Global Metals and Mining Conference.
- GlobeNewswire
Conversion of NGM’s TS Power Plant aligns with Nevada’s carbon reduction ambitions
In support of Nevada’s carbon-reduction objectives and in partnership with Governor Sisolak’s administration, Nevada Gold Mines (NGM) - a joint venture between Barrick Gold Corporation (61.5%) as the operator and Newmont Corporation (38.5%) - is pleased to announce that it has approved the conversion of its TS Coal Power Plant to a dual fuel process, allowing the facility to generate power from natural gas. This conversion will enable the facility to reduce carbon emissions by as much as 50 percent. NGM is currently working with the State of Nevada on final permitting to allow construction to begin near the end of 2020, with the goal of final commissioning in the second quarter of 2022.
- Reuters
'Not the time' for big strategic M&A, Freeport's Adkerson says
Freeport McMoRan Inc is not interested in pulling the trigger on a big deal while it ramps up copper output at its Grasberg mine, president and chief executive Richard Adkerson said on Monday. “Now’s just not the time for Freeport to think about doing a big strategic move," Adkerson said at the BMO Global Metals and Mining Conference in Hollywood, Florida. Gold miner Barrick Gold has expressed interest in acquiring the Grasberg copper-gold mine in Indonesia.
- Bloomberg
With Gold Up, Miners Face Payouts Versus Production Dilemma
(Bloomberg) -- As gold prices rise, miners have been boosting shareholder payouts in the face of a decline in global output. That’s worrying some investors concerned about the longterm growth prospects of an industry built on a depleting resource.The value of gold, a haven commodity, is driven more by global economics than supply and demand. It’s soaring toward $1,700 an ounce now on fear the coronavirus will harm growth. Any unexpected event -- from a surprising cure for the virus to a positive trade deal -- could drop the value significantly. High prices put more gold scrap on the market, low ones boost hoarding and, if miner output remains static, so should profits.Increasingly, investors are split between their wish for higher dividends in the short run and the need to assure company stability over the long term. Finding the “best of both worlds” in allocating the rising cash pile is key for the future of the industry, according to Josh Wolfson, an analyst at RBC Capital Markets.“Miners in general are exposed to significant external factors that are out of their control,” said Simon Jaeger, a portfolio manager at Flossbach von Storch AG, a top-10 investor in both Newmont Corp. and Barrick Gold Corp. “It’s certainly a reason for not paying too much in dividends,” he said. “You want to have the cash buffer on your balance sheet in order to be financially flexible when prices get worse.”Gold prices are currently at a seven-year high as concerns mount that the coronavirus outbreak in Asia will derail global growth. In a sign that the virus is already starting to dent the world’s largest economy, business activity in the U.S. shrank in February for the first time since 2013.On Monday, spot gold was up 2.3% to $1,680.38 an ounce at 7:25 a.m. in New York.Gold producers are “gushing cash,” said John Hathaway, senior portfolio manager at Sprott Asset Management, in support of the higher dividends. “They are in a position to raise their dividend,” he said. “And there will be boardroom pressure and shareholder pressure to do that.”The industry has been blasted in the past for underspending on production, overspending on acquisitions and piling up debt. Now, though, after years of fat-trimming, miners and their investors are well-positioned to gain from the higher prices. That’s allowed companies including Barrick and Newmont to boost free-cash flow and, to varying degrees, reward shareholders.Earlier this month, though, Mark Bristow, Barrick’s chief executive officer, sent a warning shot across the bow of the industry. Even if all current projects work out, he said, gold supply will still fall 30% globally by 2029. While sinking supply would be bullish for bullion prices, margins and revenues could be hit if companies are forced to mine lower-grade or hard-to-access deposits.The divide between whether to push profits or new production has become more focused this year.Agnico Eagle Mines Ltd. offers a case in point of how closely investors are watching the issue. Despite boosting its dividend 14% and forecasting rising production through 2022, Agnico’s shares were punished after it cut its 2020 output guidance earlier this month. In an interview after the results, CEO Sean Boyd argued that dividend increases are important not just as a way of sharing the benefits of higher gold prices, but also because it demonstrates a company’s ability to maintain capital discipline.Success in the changing shareholder landscape is “going to be from the better gold-mining businesses being able to attract new generalist money,” Boyd said by telephone.‘Endless Pit’Steve Land, portfolio manager for the Franklin Gold and Precious Metals Fund, believes the next step for miners is to show the sector is “not just this endless pit of having to pour more and more money in all the time.” The trend toward higher dividends is a way of rebuilding trust and confidence, according to Land. These companies can also take the time to assess future projects, he said, but should be “in no rush to push things forward.”Newmont, meanwhile, seems to be seeking to meet a “best of both worlds” scenario.In January, Newmont said it planned to hike its dividend by 79% to $1 per share annually, effective in April, while maintaining production for the next five years. On Thursday, Chief Financial Officer Nancy Buese said the U.S.-based miner was considering “other shareholder friendly actions” it might take.One key consideration “will be to determine our appropriate level of dividend on a go-forward and sustainable basis,” she said.Barrick, meanwhile, announced a 40% dividend hike to 7 cents a share earlier this month. As it sells assets and tackles its debt, the Canada-based miner is hoping to attract generalist investors to its stock. But it also lowered its five-year production guidance and is reevaluating its portfolio mix.Generally, it appears the high-dividend strategy is helping lift gold equities. A Bloomberg Intelligence index of senior gold producers lagged the performance of gold futures for most of the past decade. But in the past 12 months, the gold group is killing it, rising 57% compared with 24% for gold.“If a company has genuine productive opportunities to invest capital in their business at high return, that is always going to be preferable versus paying a dividend,” said RBC’s Wolfson by phone. “But companies which can demonstrate overall discipline by allocating capital effectively -- plus paying out cash flow to shareholders -- I think will ultimately accomplish the best of both worlds.”\--With assistance from Maria Elena Vizcaino and Yvonne Yue Li.To contact the reporters on this story: Justina Vasquez in New York at jvasquez57@bloomberg.net;Danielle Bochove in Toronto at dbochove1@bloomberg.net;Steven Frank in Toronto at sfrank9@bloomberg.netTo contact the editors responsible for this story: Luzi Ann Javier at ljavier@bloomberg.net, Reg Gale, Joe RyanFor more articles like this, please visit us at bloomberg.comSubscribe now to stay ahead with the most trusted business news source.©2020 Bloomberg L.P.
- Newsfile
Japan Gold Announces Country-Wide Alliance with Barrick Gold Corporation & Acquires Six New Projects in the Southern Kyushu Epithermal Gold Province
Vancouver, British Columbia--(Newsfile Corp. - February 24, 2020) - Japan Gold Corp. (TSXV: JG) (OTCQB: JGLDF) (the "Company") is pleased to announce the formation of a country-wide alliance with Barrick Gold Corporation (NYSE: GOLD) (TSX: ABX) ("Barrick") to jointly explore, develop and mine certain gold mineral properties and mining projects in Japan (the "Barrick Alliance"). The Company is also pleased to announce a further consolidation of its position in the Southern Kyushu Epithermal Gold ...
- Financial Times
Freeport says “now not the time” for deal with Barrick Gold
Freeport-McMoran’s chief executive dismissed reports it could sell its giant Grasberg copper mine in Indonesia to rival Barrick Gold, saying “now’s just not the time” for any deals. “Now’s just not the time for Freeport to think about doing a big strategic move,” Richard Adkerson told the BMO mining conference in Florida. Barrick Gold’s chief executive Mark Bristow has said he is interested in buying the Grasberg copper and gold mine in Indonesia, and has had conversations with Mr Adkerson.
- MarketWatch
Gold miner stocks stage broad rally, as gold prices extend run toward 7-year high
Gold miner stocks surged Friday toward a 5 1/2-month high, as growing worries about how the coronavirus outbreak will impact the U.S. economy send gold prices surging toward 7-year highs. The VanEck Vectors Gold Miners ETF jumped 2.8% in morning trading, with 36 of 48 components trading higher. The put the ETF on track for the highest close since Sept. 4. Among the more-active U.S.-listed components, shares of Harmony Gold Mining Co. shot up 9.7%, AngloGold Ashanti Ltd. soared 11.1% and Newmont Corp. hiked up 1.6%. The SPDR Gold ETF , which tracks gold prices, ran up 1.6% toward a sixth straight gain, and toward the highest close since March 2013. The safe-haven metal was getting a boost from growing worries that the coronavirus outbreak will hurt more than just China's economy, which were fueled by data from IHS Markit showing that business in the U.S. contracted in February for the first time in four years.
- GuruFocus.com
5 Companies Reach 52-Week Highs
As of late, these companies have managed to reach their 52-week highs Continue reading...
- Barrons.com
Gold Prices Have Rallied 20% in Past Year. One Analyst Thinks They Could Hit All-Time Highs.
Once above the July 2016 peak, "the TSX gold index should challenge its all-time high seen in September 2011, an 84% ramp from here," Canaccord Genuity analyst Martin Roberge says.
- GlobeNewswire
Barrick Will Not Approve Mooted Sale of SOKIMO’s Stake in Kibali
TORONTO, Feb. 20, 2020 -- Barrick Gold Corporation’s attention has been drawn to media reports to the effect that the Congolese parastatal Société Minière de Kilo-Moto SA.
- Zacks
Barrick's Massawa Project Sale Cleared by Senegal Government
One of the major approvals for Barrick's (GOLD) stake sale include the formal waiver by Senegal Government to buy additional 25% interest in Massawa at market value.
- Thomson Reuters StreetEvents
Edited Transcript of ABX.TO earnings conference call or presentation 12-Feb-20 4:00pm GMT
Q4 2019 Barrick Gold Corp Earnings Call
- Bloomberg
Gold Diggers Resist the Rally’s Lure
(Bloomberg Opinion) -- Bullion prices are at their highest in seven years, closing in on $1,600 an ounce. Gold held by exchange-traded funds is at all-time records and rising, thanks to worries over the economic damage inflicted by the coronavirus outbreak. Reserves, meanwhile, are depleting. It’s a heady mixture for miners, but perhaps not yet an intoxicating one.Take Polyus PJSC, Russia’s largest gold digger. The $17 billion company said last week that it would pay down debt before beginning to spend seriously on its $2.5 billion Sukhoi Log project, set to add 1.6 million ounces a year to supply. That’s quite a statement. This is one of the world’s lowest-cost producers, generating plenty of cash, holding one of most impressive untapped resources globally, at a time of rising prices. The mine promises significant extra output for a company that aims to produce 2.8 million ounces this year. Even so, Polyus is resisting the urge to fast-track, with a roughly two-year “transitional period” of planning before it begins in 2023.Granted, there are circumstances peculiar to Polyus that suggest conservative timing and financing is necessary. The miner is controlled by the son of Suleiman Kerimov, one of a handful of tycoons included in Washington’s 2018 sanctions list. A planned $900 million equity sale to Chinese conglomerate Fosun Group fell apart earlier that year, too. The project itself, meanwhile, is vast, and deep inside Russia, hardly a popular jurisdiction with foreign mining investors.Polyus’s conservative approach is noteworthy, nonetheless. This is an industry that has in general become far more cautious with big-bang projects after a string of boom-time efforts a decade ago, begun in haste and regretted at leisure. Barrick Gold Corp.’s Pascua Lama in South America started in 2000 as a $1.2 billion project; by the time it was shelved in 2013, the estimated cost had soared to $8.5 billion. Polyus learned its own lessons at its Natalka mine. It was trapped by falling prices in 2013 and construction eventually paused, before resuming in 2016. Certainly Sukhoi Log, first studied by Soviet geologists in the 1970s, comes with history and plenty of challenges. The size, at some 63 million ounces and as much of a quarter of Russia’s gold reserves, means it is the largest project on the industry’s horizon, by some way. For Polyus, it adds the equivalent of the annual output of its nearest rival, Polymetal International Plc. That gargantuan scale that leaves plenty of room for costs to spill over. There is processing to resolve, all on site, and transport logistics will be complex given the mine’s location. When I visited in 2012, the airport in the nearest settlement closed if it rained.But the geology isn’t unfamiliar to Polyus, already operating nearby. It will use conventional processing. And the miner’s overall expenses are low by global standards. Its all-in sustaining cost was $594 per ounce in 2019, against Barrick’s $894. That’s a substantial margin even if bullion prices sink to the $1,050 used in Polyus’s Sukhoi Log calculations. It’s all a far cry from the mood of the 2000s bull run, when gold shot up to $1,900 an ounce from $300 in just over a decade, and miners raced behind. The resulting value destruction was immense: Billions were spent on terrible projects and worse companies. A full 80% of the transaction value of the eight largest deals between 2001 and 2011 was impaired, according to a McKinsey & Co. study published last year. The industry’s return on capital between 2010 and 2016 was a pathetic 2.6%.With the gold price trending higher after a couple of years around $1,200 to $1,300, deals have come back, and cashflows are helping exploration budgets rise. It’s notable that M&A discussions are beginning to build in prices closer to $1,500 than the $1,200 or so of recent years. It’s exuberance that hasn’t quite fed through to mega projects.Polyus’s muddy knoll in bleak eastern Siberia has enough gold beneath it to rival behemoths like Grasberg, in Indonesia. As prices climb and buccaneering projects like Newcrest Mining Ltd. and Harmony Gold Mining Co.’s Wafi-Golpu in Papua New Guinea are back in discussion, the question is whether Polyus sets a trend, or becomes the judicious exception. To contact the author of this story: Clara Ferreira Marques at cferreirama@bloomberg.netTo contact the editor responsible for this story: Matthew Brooker at mbrooker1@bloomberg.netThis column does not necessarily reflect the opinion of Bloomberg LP and its owners.Clara Ferreira Marques is a Bloomberg Opinion columnist covering commodities and environmental, social and governance issues. Previously, she was an associate editor for Reuters Breakingviews, and editor and correspondent for Reuters in Singapore, India, the U.K., Italy and Russia.For more articles like this, please visit us at bloomberg.com/opinionSubscribe now to stay ahead with the most trusted business news source.©2020 Bloomberg L.P.
- InvestorPlace
The Interview That Should Terrify Owners of Freeport-McMoRan Stock
On paper, there's an intriguing bull case for miner Freeport-McMoRan (NYSE:FCX). Freeport-McMoRan stock looks cheap. Copper prices have dipped of late, but have at least one important long-term tailwind. And Freeport has steadily improved its balance sheet in recent years, cutting net debt by over $12 billion between the end of 2015 and the end of 2019.Source: MICHAEL A JACKSON FILMS / Shutterstock.com But the key phrase is "on paper." In practice, there's a huge stumbling block to the bull case for FCX stock. Even if Freeport-McMoRan can drive higher free cash flow, as bulls and the company itself project, there's a long-running concern as to where that cash flow is going to go.The answer, according to a recent interview with Freeport-McMoRan's chief executive officer, is not to shareholders. Given the history not just of Freeport but the entire mining industry, that's a significant problem.InvestorPlace - Stock Market News, Stock Advice & Trading Tips The Case for Freeport-McMoRan StockFCX stock already has been a solid investment in the last few years. Shares bottomed in January 2016 below $4, as pressure on the company's since-divested oil and gas assets weighed on the stock. From that bottom, Freeport-McMoRan stock has more than tripled -- and there's a case for more upside ahead. * 20 Stocks to Buy From the Law of Accelerating Returns After all, production should increase nicely in the next two years. After its fourth-quarter report last month, Freeport guided for copper sales to reach 3.5 billion pounds in 2020, up from 3.3 billion in 2019. In 2021, however, the figure should spike to 4.3 billion, as the Grasberg mine in Indonesia, of which FCX owns 49%, returns to normalized output after a shift to underground mining.From there, copper prices need to cooperate, and that's always a risk. Copper prices are notoriously sensitive to the global economy; the commodity has been nicknamed "Dr. Copper" for its ability to provide a leading indicator of macroeconomic strength. A poorly-timed recession -- or even continued softness in key markets in Asia -- could pressure prices and thus Freeport's earnings and cash flow.But there's one potential long-term driver for copper demand: electric vehicles. EVs are "copper hogs," meaning growth from the likes of Tesla (NASDAQ:TSLA) can boost copper prices. and those prices drop almost straight to Freeport's bottom line. It's not as if shares are expensive even in the current moderate-price environment; should copper spike higher from here, Freeport stock likely does the same. Balance Sheet and Cash FlowFinally, Freeport's balance sheet is in much better shape. As noted, debt has come down dramatically in a matter of years. The company has over $5 billion in liquidity, and a higher stock price if it wants to make an acquisition. If Freeport doesn't make a deal, free cash flow should impress -- particularly if copper prices rise.Indeed, with its fourth-quarter presentation, Freeport-McMoRan modeled solid free cash flow in a higher-price environment. At $3 per pound, up from a current ~$2.60, operating cash flow in 2021-2022 would be in the range of $5 billion.Capital expenditures currently estimated at $2.4 billion for 2021 suggest free cash flow around $2.6 billion. Put even a 10x multiple on that figure and FCX gains over 50%; increase the multiple, and the upside could be even higher. Where Does the Cash Go?To be sure, that paper case does require some help from copper prices. Models for 2021-2022 at $2.75 a pound suggest free cash flow under $2 billion. A market capitalization currently near $19 billion thus likely doesn't see that much upside without pricing help. But investors in mining stocks are looking for leveraged returns on gains the underlying commodity -- and on paper FCX stock is set up to provide precisely those returns if copper gains.But that gets to the practical problem, and the interview CEO Richard Adkerson gave to Reuters at the end of last month. Adkerson noted the potential for higher cash flow and a higher stock price which would allow the company to make acquisitions."I'm looking forward to having a new experience in my career toward accessing alternatives and deciding which way we go…We don't have a clear directive now on what that direction could be, but we will be attractively situated and will have an opportunity to add value through investments," he told Reuters.Those investments could include not just acquisitions but the construction of new mines.In other words, the incremental free cash flow Freeport-McMoRan hopes to drive isn't going back to shareholders. It's going back into the business under Adkerson's direction. And that should worry, if not terrify, FCX shareholders. Adkerson's HistoryAdkerson was named CEO on Dec. 10, 2003. Under his watch, Freeport-McMoRan stock has declined by 42%.There isn't an external reason for the pressure. Copper prices, according to data from YCharts, have increased 174% over that span. Meanwhile, diversified miner BHP Group (NYSE:BHP), which has significant copper holdings, has seen its stock more than triple. Including dividends, BHP has posted a total return of more than 450%. For Freeport-McMoRan stock, total returns remain modestly negative.One big reason for the decline was the aforementioned move into oil and gas, spearheaded by Adkerson. Freeport-McMoRan spent $20 billion on two acquisitions in 2012 at the height of the oil boom. The moves were instantly criticized by Wall Street and by investors; Freeport stock dropped 16% in a single day on the announcement. Allegations of self-dealing soon followed.Less than four years later, Freeport managed to get less than $4 billion for its assets at the nadir of the oil bust. Over $16 billion in shareholder value was destroyed.An investor might believe -- or want to believe -- that Adkerson and the Freeport board have learned their lesson from the disastrous acquisitions. There's no evidence they have.The Freeport-McMoRan dividend was slashed in 2014; the board hasn't hiked the payout since despite a paltry 1.6% yield and the expected growth in free cash flow. Adkerson, at least per his interview, is looking to spend more shareholder money after the company spent the last four years recovering from its foray into oil and gas.There are thus two scenarios here. Copper prices fall or stay roughly flat, and Freeport-McMoRan stock likely does the same. Or copper prices rise, giving Adkerson free reign to go and spend billions of dollars more of shareholder funds. Neither sounds particularly attractive. The Mining ProblemTo be somewhat fair, this is not a Freeport-only problem. As I detailed back in 2018, gold miners like Barrick Gold (NYSE:GOLD) have done a disastrous job of fulfilling their mission of providing leverage to the gold price. Barrick, Kinross Gold (NYSE:KGC) and AngloGold Ashanti (NYSE:AU) all saw their shares fall by over 60% even in a rising-price environment.Recent performance for mining stocks has been better, but it's still not as good as it should be in theory. Even the gains in Freeport stock over the last few years are more a case of the stock rallying sharply from 2016 lows than any real improvement on the ground. FCX stock actually is down 20% over the past three years despite basically flat copper prices. The Bottom Line on Freeport-McMoRan StockWhat makes a stock like FCX particularly problematic is that the exchange-traded fund revolution has created far better alternatives. An investor who is bullish on copper can simply buy copper through an ETF. She can lever up that bet through the use of margin or a 2x or 3x ETF. Those trades have risk if copper prices decline of course; so does FCX.But if copper prices rise, that investor doesn't have to let Adkerson determine what to do with her gains. ETFs do have fees, but they're generally minimal; meanwhile, Adkerson's pay packages from 2016 to 2018 alone totaled over $50 million, according to Freeport's most recent proxy statement.If Freeport-McMoRan and Adkerson truly had learned their lesson and were looking to use potentially higher cash flow for increased shareholder returns, that would be one thing. Clearly, they're not. History, and the -42% returns under Adkerson's 16-year tenure, both suggest that it is a real problem for Freeport-McMoRan stock.As of this writing, Vince Martin has no positions in any securities mentioned. More From InvestorPlace * 2 Toxic Pot Stocks You Should Avoid * 20 Stocks to Buy From the Law of Accelerating Returns * 10 Strong Lottery Ticket Stocks That Could Soar in 2020 * 7 U.S. Stocks to Buy on Coronavirus Weakness The post The Interview That Should Terrify Owners of Freeport-McMoRan Stock appeared first on InvestorPlace.
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