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Could Copper be the Shiny Object That Lifts Barrick Gold?

Could Copper be the Shiny Object That Lifts Barrick Gold?

Barrick Gold Corporation (NYSE: GOLD) is down 6% to close out the week in which the mining company reported its fourth-quarter earnings. Barrick had a one-cent beat on the bottom line but a slight revenue miss. For the fourth consecutive quarter, the company has posted lower revenue and earnings than the previous year.  

Not surprisingly, GOLD stock is down 28% in the last year. And this week’s price movement has sent the stock slicing below even its 10- and 20-day simple moving averages. But there could be a catalyst coming for Barrick in 2023. The company believes it will get gold production back to target levels. However, the real catalyst may come from the company’s copper mining operations. 

Many investors know that Barrick Gold has the industry’s largest gold mining portfolio. The company is the largest producer in the United States and Africa. But Barrick is growing its presence in copper. It’s been steadily increasing its copper holdings.  

A New Copper Rush? 

Since 2018 which was the year Barrick Gold merged with Randgold, the company has produced approximately 1.7 billion pounds of copper. And in 2022, copper production was up 124% from the prior year. That outpaces the increase in global copper production which has climbed for 16 million metric tons to 21 million metric tons between 2010 and 2021 – a rate of about 2% per year.  

But there’s genuine concern that copper demand will outpace supply in the years to come. That’s because copper is a key component in two of the most compelling and potentially fastest-growing sectors, in the U.S. economy.  

Copper is needed to build a renewable energy infrastructure. However, that may be easier said than done. For example, solar panels require twice as much copper per megawatt as electricity generated via natural gas or coal. And offshore wind turbines require five times the amount of copper. And all of this doesn’t account for upgrading the electricity networks that will have to be expanded and will require more copper.  

Then there’s electric vehicles. The Copper Development Association reports that a conventional internal combustion engine car requires between 18 to 49 pounds of copper. Electric cars, however, will require 183 pounds. And that number is even larger for buses and other large vehicles. 

Lower Oil Prices Could be a Catalyst 

When oil prices go down, mining stocks typically go higher. Mining is an oil-intensive process so if the miners can get some relief from those prices it can help their bottom line. This is important to remember because, first and foremost, Barrick Gold is a mining stock. While it does provide exposure to precious metals, It’s still a mining company. For many investors seeking exposure to precious metals, it’s usually best to own them directly. That may not be something that Warren Buffet would advise, but it’s a market reality.  

Is GOLD Stock a Buy? 

Buying mining stocks is a long game. The company’s revenue and earnings outlook for the next five years look weak. But that could change if the company’s copper production increases.  

It’s best to look at the company’s financials, which are improving. The company has been reducing its debt and has restored its “A” grade with Moody’s in 2022, which puts it among the best-rated miners in the industry. The company believes that the stock is undervalued and issued $424 million in share buybacks in 2022 and introduced a new buyback program valued at up to $1 billion this year. 

And from a technical standpoint, GOLD stock is showing signs of oversold with the Relative Strength Indicator hovering around 30. But the stock is currently hovering around a key support level that investors would want to see the company hold to form a base for the next leg higher.  

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