What's the idea?
Gold prices are up 25% in 2024, outperforming major stock indices including the S&P 500. This growth reflects strong demand and supply dynamics that allow mining companies such as Barrick Gold to continue to capitalize on high gold prices.
In Q3 2024, gold demand reached a record 1,313 tons (+5% year-on-year, YoY) and its value exceeded $100 billion thanks to a 28% increase in the average gold price to $2,474 per ounce. The World Gold Council forecasts strong investment demand for the precious metal, but notes difficulties with consumer purchases due to high prices and the strengthening of the US dollar.
Barrick Gold reported strong financial results for Q3 2024, with revenues up 17% YoY to $3.37 billion despite a decline in production to 943,000 oz from 1,039 million ounces a year earlier. At the same time, rising costs put pressure on profitability: Total Cash Costs and All-in Sustaining Costs increased by 21% and 20% YoY, respectively.
Barrick Gold's 2024 gold production is expected to be at the lower end of its guidance range of 3.9–4.3 million ounces, with significant improvements projected in Q4 2024 due to expansion projects and operational improvements. The company's multiple valuations indicates a discount to historical averages, which investors can take advantage of amid strong gold market fundamentals.
We recommend buying CALL stock options on GOLD shares with a strike price of $18.0 and an expiration date of 17/04/2025. The option will cost about $1.66, while buying one contract will cost $166.0, as options are traded for 100 shares.
Investors who are more pessimistic about the possible GOLD stock performance and would like to take a bearish position can buy PUT options on the stock with a strike price of $18.0 and an expiration date of 17/04/2025. The cost of the option will be about $1.74, while buying one contract will cost $173.5.
About Company
Barrick Gold Corporation (GOLD) is one of the world’s largest gold mining companies. It is engaged in the production of gold, copper and related metals, as well as exploration projects. In 2023, the company produced 4.05 million ounces of gold, second only to Newmont Corporation. Barrick Gold was founded in 1983 and is headquartered in Toronto, Canada.
Why do we like CALL OPTION GOLD.US @18?
Barrick Gold Corporation is the second largest gold mining company in the world. It produced 4.05 million ounces of gold in 2023. In recent months, gold has become one of the most profitable assets: its price rose by about 25% between January and September 2024, outperforming the S&P 500 index and other US stock indices. Given the current trends in global supply and demand in the gold market, the price of this metal may remain high, which will be favorable for mining companies.
According to the World Gold Council's Q3 2024 report, total gold demand reached a new record of 1,313 tons, up 5% from a year earlier. The value of this demand exceeded $100 billion, up 35%YoY, helped by a 28% increase in the average gold price to $2,474 per ounce.
Quarterly dynamics of gold demand by sector
In terms of trends by sector, the World Gold Council highlighted the following trends:
Investment demand remains strong, despite a slight slowdown in investment in bars and coins. There was a notable reversal in inflows into gold ETFs, with 95 tons entering the market, reversing the trend of outflows seen since the beginning of 2022. This reflects a return of investor confidence amid geopolitical uncertainty and economic conditions. Investment in bars and coins totalled 269 tonnes, down 9% YoY, mainly due to weaker demand in key markets, although strong growth was recorded in India.
World jewelry demand fell to 459 tons, down 12% on the previous year. Despite this decline, demand for jewelry grew by 13% in value terms, indicating an increase in consumer spending despite a reduction in purchases due to high prices.
Demand from central banks was 186 tons in 3Q 2024, a slowdown from previous quarters but in line with the broader trend seen throughout the year.
Demand from the industrial sector increased by 7% to 83 tons, supported by the development of artificial intelligence (AI). However, caution remains in this segment due to the relatively small base volume.
The World Gold Council predicts that Q4 2024 will be challenging for gold, with strong investment activity amid difficulties in consumer demand due to high prices. Despite a possible slowdown in central bank purchases, professional investment and robust demand for bars and coins are expected to offset lower consumer demand caused by changes in global interest rate policy and the lower opportunity cost of owning gold.
In addition, seasonal factors may support jewelry demand, as upcoming holidays may stimulate purchases, particularly in markets such as India, where recent tariff cuts have rekindled consumer interest. However, the strengthening of the US dollar — a trend that began after Donald Trump's victory in the presidential election — could have a negative impact on commodity prices, including gold.
Against the backdrop of strong gold market fundamentals, Barrick Gold reported strong third quarter results. The company produced 943,000 ounces of gold, in line with Q2 2024 but below the 1,039 million ounces produced in Q3 2023. Despite this, revenue increased by 17% YoY to $3.37 billion, helped by higher prices, which averaged $2,494 per ounce (+29% YoY).
However, rising costs continue to put pressure on profitability. In Q3 2024, Total Cash Costs were $1,104 per ounce (+21% YoY) and All-in Sustaining Costs (AISC) were $1,507 per ounce (+20% YoY). The increase in costs is mainly due to maintenance work and royalties dependent on high gold prices.
Barrick Gold operating results
Barrick Gold aims to maintain organic growth through its brownfield and greenfield projects. Capital expenditures totaled $583 million in Q3 2024, down from $694 million in Q2 2024, but comparable to $589 million for the same period in 2023. Investments were focused on projects such as capacity expansion at the Pueblo Viejo project and infrastructure improvements at Nevada Gold Mines. The quarter-on-quarter decrease in capital expenditure was due to the completion of certain expansion and maintenance work.
Thanks to strong operating cash flow of $1.18 billion (+5% YoY) and lower capital expenditures, the company's free cash flow reached $444 million in Q3 2024, up 24% YoY, versus $359 million in Q3 2023. This was the highest level of free cash flow since Q4 2021.
Barrick Gold financials
Barrick Gold management expects the company's 2024 gold production to be at the lower end of the guidance range of 3.9–4.3 million ounces. Gold production in Q4 2024 is expected to increase significantly from Q3 due to the expansion of the Pueblo Viejo mill, increased roasting capacity at the Gold Quarry following a shutdown in Q3, improved performance at the Turquoise Ridge underground mine and access to higher grade material at Kibali.
Barrick Gold currently trades at a discount to historical averages, with EV/sales at 3.35x, EV/EBITDA at 7.52x, P/FFO at 7.44x and P/E at 19.81x. Given the record gold price and the company's expected operational improvements in Q4 2024 and beyond into 2025, Barrick Gold shares could represent an interesting investment opportunity.
Barrick Gold historical multipliers
How to use the idea
We recommend buying CALL options on GOLD shares with a strike price of $18.0 and an expiration date of 17/04/2025. The option will cost about $1.66, while buying one contract will cost $166.0, as options are traded for 100 shares.
The investor will profit if on the expiration day the price of the underlying asset is above the breakeven point* of $19.66. The higher the GOLD stock price rises above this point, the greater the profit will be. We recommend closing the position when the option value reaches $3.50. In this case, the profit will be 111%.
If on the expiration day the price of the underlying asset is above $18.0 but below $19.66, the investor will receive a limited loss. If the price of the underlying asset is below $18.0, the investor will receive a maximum loss of $166.0.
The chart below shows the distribution of profits and losses from the option position depending on the GOLD stock price on the expiration date.
Bearish view on the stock and PUT options
It cannot be ruled out that negative corporate events could lead to a decline in the GOLD stock price. If you are bearish on the company, you can buy PUT options with a strike of $18.0 and an expiration date of 17/04/2025. The option will cost about $1.74, while buying one contract will cost $173.5.
If the price of the underlying asset is below the breakeven point of $16.27 on the expiration day, the potential profit could reach $1,626.
If, on the expiration day, the price of the underlying asset is below $18.0 but above $16.27, the investor will receive a limited loss. If the price of the underlying asset is above $18.0, the investor will receive a maximum loss of $173.5.
Important note
Options must be purchased with a limit order. Buying an option contract with a market order can result in extremely unfavorable prices.
This is a speculative investment idea which carries increased risks. Investing in options can provide a 50%, 100%, 200%, and in some cases even higher returns, but also can lead to a complete loss of the amount invested! In cases where volatility is low, profit or loss can vary between 20% and 30%.
A prudent approach to implementing option ideas is to invest a small portion of the portfolio in many such cases. In this way, losses from unsuccessful ideas will be compensated by high returns on successful investments.
Key risks
There is a possibility that some negative corporate events could cause the GOLD stock price to fall. In this case, the CALL options would decrease in value, while the PUT options would increase.
The relatively low volatility of GOLD stock may cause the options to lose value by the expiration date.