Xiaomo commented on Barrick Mining (B.US) Q3 performance: production overshadowed costs, lowered target price to $53, North American gold business IPO became a revaluation switch

The Zhitong Finance App learned that the three-quarter report released by Barrick Mining (B.US) on Monday was basically in line with expectations. J.P. Morgan maintained an “gain” rating, but lowered the target price from $55 to $53. The reason was cost: the bank lowered its 2027 and 2028 profit forecasts by 3% and 6%, respectively, and lowered its EBITDA forecast for the fourth quarter by 3% to $3.6 billion. One sentence of the report concludes that the verification of execution still depends on the Nevada Gold Mine (NGM), and what can really reanchor the valuation is the North American asset IPO prospectus to be submitted this month.

According to the results released on November 9, the adjusted EBITDA for the quarter was US$2.47 billion, an increase of 22% over the previous year; the adjusted EBITDA caliber adopted by J.P. Morgan Chase adopted an adjusted EBITDA of US$3.2 billion, which is 4% higher than the company's consolidated market consensus. Gold production was 816,000 ounces, up 3% month-on-month, and 6% year-on-year increase after excluding divested assets, falling within expectations; copper production was 50,000 tons, 6% lower than consensus.

One more, one less: Loulo and Kibali have withstood the weather

The production structure explains why “exceeding expectations” was only marginally. Mali's Loulo-Gounkoto climbed the hill ahead of schedule. The quarter's increase was 16% month-on-month, 14% higher than the consensus; the Democratic Republic of the Congo (DRC) Kibali increased 6% year over year, 16% higher than the consensus; and the Nevada gold mine remained in line with expectations. Three increases offset three other blood losses: Porgera in Papua New Guinea was affected by weather, 27% lower than consensus; Veladero, Argentina, was also 26% lower due to extreme weather; and North Mara, Tanzania, fell 42% year over year due to unstable electricity.

The company's caliber and investment bank's caliber can be mutually confirmed here: North America produced 497,000 ounces of gold (including 400,000 ounces of Nevada gold), and international business was 319,000 ounces, an increase of 6% over the previous month. The annual guidelines remained unchanged at 2.9 million to 3.25 million ounces of gold and 190,000 to 220,000 tons of copper.

The cost is a really ugly page in this financial report. The total cash cost of gold (TCC) was 1,386 US dollars/ounce, up 22% year over year; total maintenance cost (AISC) was 1,911/oz, up 24% year over year. Copper's C1 cash cost was 2.76 US dollars/pound, up 41% year over year, 12% higher than consensus. The reason was due to diesel inflation and exchange rates. Jefferies gave another caliber: copper's AISC reached $4.52 per pound, far higher than its forecast of $3.66 per pound.

What offsets the cost is the price. The quarter achieved a gold price of 4,243 US dollars/ounce, a year-on-year increase of 23%; a 49% year-on-year increase in copper prices (company announcement). Therefore, the revenue side increased 22% year over year to 5.07 billion US dollars, net profit of 1.32 billion US dollars and 0.80 US dollars per share. After adjustment, it was 0.82 US dollars per share, an increase of 41% year over year, higher than the $0.79 consensus in FactSet statistics.

The guidelines are repeated, but the structure is fragmenting

The words “reaffirm” conceal internal divisions. Xiaomo pointed out that the management placed the annual production guidelines for the three North Mara, Porgera and Veladero mines at or below the lower limit, which means that Loulo-Gounkoto, Nevada Gold Mine, and Kibali must reach or above the upper limit to make up. CEO Mark Hill says that the annual gold production will fall to the midpoint or slightly higher than the guideline.

The problem with copper is on the cost side: the annual unit cost guideline is at or above the upper limit. At the beginning of the year, Komo estimates that WTI is about $90 per barrel ($70 in the benchmark scenario), diesel alone is $0.08 more per pound.

The direction for the fourth quarter is higher. With reduced maintenance in Pueblo Viejo and continued high grade ore bodies in North Mara, gold production should increase sequentially; copper benefited from ore stocks, and production increased steadily and slightly. The Nevada gold mine will have a relatively mild season in the first quarter, as maintenance has been scattered throughout the year — a positive assumption for Komo when modeling 2027.

North American IPO: S-1's answer is “how much is Nevada still worth”

What actually got Komo in the headline was the listing of assets in North America. The company's target point is still the end of 2026 to the first quarter of 2027. Komo expects S-1 to be submitted this month and includes an updated technical report — the latter will for the first time systematically disclose the optimized space for the Nevada gold mine, as well as Pueblo Viejo's stabilization plan (the third flotation line).

The framework for this matter is already in place. As a partner of Nevada Gold Mine and Pueblo Viejo, Newmont has stated its support for this IPO. The deal includes a payment of 1.95 billion US dollars to Barrick and the inclusion of Barrick's Fourmile project with Newmont's Fiberline and Mike projects into the Nevada joint venture. Xiaomo sees this “replacement payment” of about 2 billion US dollars as one of the sources of funding for future repurchases.

Xiaomo leaves room for judging the value of options: the model generally only takes into account defined reserves, but Fourmile values the current amount of resources and believes that the amount of resources “is likely to increase significantly”; the Nevada gold mine has the potential to exceed 3 million ounces of annual production after 2030, while this year's guideline is 1.77 million to 1.98 million ounces. As for Mali's Loulo-Gounkoto and Pakistan's Reko Diq, the bank gave a net present value of “very little to zero” and used higher discount rates for high-risk African jurisdictions.

Buyback: Approximately 5% of the market value has been purchased during the year

Third-quarter buybacks of $761 million, plus quarterly dividends of $0.175 per share, combined to return $1.04 billion to shareholders, an increase of 23% year over year. From the beginning of the year to now, it has been purchased at about 2 billion US dollars, and Komo estimates that it is equivalent to about 5% of the market value. The balance sheet improved at the same time: net cash at the end of the quarter was $90 billion, compared to $0.3 billion at the end of the second quarter.

Komo determined that there is still room for more buybacks. The funding sources are capital raised from the North American IPO and Newmont's sum of about 2 billion US dollars. This is also why it is willing to maintain “increase in holdings” while lowering profit forecasts — in terms of valuation, the bank gave 5 times EV/EBITDA and a free cash flow yield of 10% under the 2028 spot price.

The target price algorithm is five or five: half comes from net asset value (NAV), half from EV/EBITDA multiples, of which the 2028 forecast uses 6.0 times (in line with Barrick's historical average), uses 1.0 times P/NPV, and deducts extra-table obligations such as environmental restoration. The drop from $55 to $53 was mainly due to a reduction in the 2027/2028 forecast and conservative treatment of Loulo-Gounkoto at a running rate of around 400,000 oz/year — until it saw its ability to self-finance back to historical levels above 500,000 oz/year.

The other side: losing out to peers and unsettled old accounts

The stock price rose 4.2% on the same day, and the XAU index rose 4.7%, continuing to lose. Xiaomo's explanation for this is that investor confidence “takes time to solidify,” and the execution of the Nevada gold mine is still a “show me” story. Behind this statement is a history that is not far off: Mark Hill succeeded Mark Bristow, who had been in charge of the company for a long time, more than a year ago, and the company had a record of repeatedly falling short on guidelines and poor safety records.

The risk list is also very clear: fluctuations in gold and copper prices, project delivery in new jurisdictions such as Pakistan, political risks in B/C rating jurisdictions such as Mali, Argentina, and Zambia, and the possibility that “recent valuation downgrades due to disturbances in Mali, poor guidance, and management changes” will be repeated again. Reko Diq is still under review, and market concerns about rising development costs and delays have not been resolved.

Peer choices are not entirely consistent. Jefferies maintained a “buy” target price of $52, and considered the operating performance to be “encouraging,” but indicated that free cash flow was lower than its $1.22 billion forecast and $1.29 billion consensus — consolidated free cash flow of $1.17 billion, down 21% year over year. In other words, the combination of production and price is sufficient to support the profit statement, but not enough to improve cash flow simultaneously; this is why Xiaomo handed over the revaluation key to S-1 rather than to this quarter.