Shares of gold and copper miner Barrick Mining (B +1.68%) 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.
NYSE: B
Key Data Points
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.
