Based out of Toronto, Canada, Barrick (NYSE:ABX) is the largest gold producer in the world with almost $11 billion in sales in 2010 and almost 7.8 million ounces of production last year. Along with that, it also has the largest gold reserves in the world with over 140 million ounces of proven and probable reserves, and a substantial amount of copper reserves currently sitting at 6.5 billion pounds as of 2010. Operations are across 26 countries and on five continents, mining a variety of metals including first and foremost gold. With all the volatility of gold prices lately, the question is, should you buy?

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Supply and Demand
According to the World Gold Council, gold demand of 919.8 tons in the second quarter of 2011 showed a staggering 17% drop from the same period last year when it was 1107 tons. This was led by an astounding 82% decrease in exchange-traded fund (ETF) demand, which was offset slightly by a 6% increase in jewelry demand and a 2% increase in technology demand. To be fair, the second quarter of 2010 saw the highest demand for gold ETF's on record and it would be hard to top that. (For related reading, see Should You Follow Soros Out Of Gold?)

However it is important to note that although the demand in tonnage has been in decline, the value of gold demand overall has still increased due to the recent spike in gold prices. Overall gold demand value has increased from $42.6 billion in Q2 of 2010 to $44.5 billion in Q2 of 2011, a 4.5% gain. China and India continue to account for over half of investment and consumption demand for gold.

Another important thing to note, the previous three quarters before hand have seen increases in the value of gold, as well as the value of the demand. It is hard to assume that gold demand will continue to drop on one weak quarter especially with the ongoing fear in the marketplace.

Geopolitical issues and sovereign debt concerns are also expected to continue for the foreseeable future. With central banks adding to their reserves, and with no major seller of gold, the lack of supply is forecasted to prolong into the future with the lack of production growth.

Competitors Comparison
Now let's see how Barrick Gold stacks up against some of its competition using a few common multiples:

Company Market Capitalization P/E PEG EV/EBITDA Price/Book ROE
Barrick Gold (NYSE:ABX) $46.6B 12.4 0.44 6.78 2.50 18.01%
Gold Corp (NYSE:GG) $37.42B 18.9 1.53 13.51 1.86 9.41%
Gold Fields (NYSE:GFI) $10.71B 37.4 0.77 8.17 2.11 6.03%
Newmont Mining (NYSE:NEM) $31.8B 14.1 1.92 6.23 2.21 20.91%
Anglogold Ashanti (NYSE:AU) $15.56B 21.7 0.17 8.93 4.08 22.07%

As you can see Barrick has the lowest price/earnings ratio, one of the lowest PEG ratios (if it's below 1 it can be considered undervalued), and one of the lowest enterprise multiples, as well as the third-highest return on equity. Using these criteria we can see that Barrick is priced favorably against its competition. However, using price to book, it trades at a slight premium compared to most (although keep in mind Barrick has the most gold reserves).

Free Cash Flow
Another way to see how well Barrick is performing is by looking at its free cash flow. This is calculated by taking the operating cash flow and subtracting its capital expenditures. During the past 6 months Barrick has had negative free cash flow due to a 36% increase in its capital expenditures over the same period last year. This is partly due to lower production than anticipated in Chile and Argentina, and so the company has increased its capital expenditures as a result. Historically however, Barrick Gold has had positive free cash flow, hitting a high of about $1 billion in 2006. This increase in expenditures should increase production so it shouldn't be too worrisome. (For related reading, see How Can I Invest In Gold?)

The Bottom Line
Barrick Gold has targeted to grow to nine million ounces of gold per year within the next five years, up 15% from 2010. It is also lowering its cost per ounce to $290-$320 down from $340-$380 per ounce. It is priced favorably against the competition and increasingly has diversified into copper with the purchase of Equinox Minerals back in July. As long as gold prices hold up (and from the lack of supply coming onto the market and central banks still buying, it looks like it will for the foreseeable future), Barrick Gold is worth a look.

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