Geopolitical worries have more to do with gold rising to record highs than does inflation, Barrick Gold Corp.'s GOLD chief executive said Monday in a conference call accompanying second quarter results.

"The gold price is up because the world’s in a mess, not because of inflation," Barrick CEO Mark Bristow said on a conference call. "Inflation is part of that mess." He also said the market is undervaluing the company's gold and copper mines.

Gold is often viewed as a safe-haven investment in times of economic and political uncertainty. The precious metal can also serve as a hedge against declines in the value of the U.S. dollar. 

The precious metal is up some 21% over the past year, with futures notching a record above $2,500 an ounce. The World Gold Council, a trade group, said global gold demand hit a record in the second quarter, largely on flows from institutional investors, wealthy individuals and offices that maintain investment portfolios for high net-worth families.

Also Read: Gold Fields Acquires Osisko Mining for $1.57B, Secures Control Over Highly Prospective Windfall Project

Conflicts and Inflation

Gold market experts point to conflicts in the Middle East and Ukraine as reasons behind gold's appeal at the moment. Both conflicts have ratcheted up recently, with reports that Iran is considering retaliatory action against Israel and news of a Ukrainian incursion into Russian territory.

Meanwhile, gold investors are also buying the precious metal on expectations the Federal Reserve will begin a series of interest rate cuts next month. As a safe-haven investment, gold competes with government bonds, but unlike Treasurys, gold doesn't pay interest. So, when interest rates decline, gold becomes more attractive.

That dynamic is sometimes in tension with gold's role as a hedge against inflation. When inflation is rising, gold can become more attractive for its ability to maintain its value over long periods of time compared to declines in value of the greenback.

The latest inflation data from the U.S. on Tuesday showed producer prices rose less than expected in July, and economists expect July consumer price data out Wednesday to have risen 2.9% year-over-year, down slightly from June's 3% increase. A lower-than-expected print would further bolster expectations of Fed rate cutting.

Valuing Gold and Copper Assets

The rising gold price helped Barrick beat expectations for second-quarter financial performance.

It brought in revenue of $3.162 billion, a 12% year-over-year increase that beat Wall Street's consensus estimate of $3.114 billion even though gold sales were down year on year. Adjusted earnings per share came in at 32 cents compared with a consensus estimate of 27 cents. The company's average realized gold price rose 19% year on year to $2,344 per ounce, a faster increase than the 11% year-on-year increase in all-in-sustaining costs to $1,498 per ounce.

Its copper position also helped the company, as its average realized copper price rose 22%.

But Bristow said the company's share price has not fully reflected the value of all Barrick's assets.

He pointed to the company's joint venture with Newmont Corporation NEM in Nevada and Barrick's growing copper business, saying the combined assets are worth at least $31.7 billion based on analyst consensus net asset values and market-based multiples. 

That was bigger than Barrick's market capitalization of $30.57 at the last close before the company released results Monday.

"The value of just our interest in the Nevada Gold Mines and our copper portfolio alone exceeds our current market cap," Bristow said on the conference call, which was held Monday morning. "When you buy Barrick today, you get a lot for free."

Bristow's pitch seems to have worked, with Barrick's shares jumping enough on Monday to boost its market cap to $33.35 billion by the end of trading. Shares rose more Tuesday, pushing its market valuation to $33.68 billion as of last check.

It should be noted that expanding its copper holdings is an expensive proposition and years from completion, which may have accounted for some of the lower value investors were ascribing to Barrick.

The company is spending nearly $2 billion to expand a copper mine in Zambia and $7 billion to build a copper and gold mine in Pakistan, with new production from both expected to begin in 2028. 

Still, analysts are generally favorable to the company. Analysts at Jefferies raised the per-share price target to $23 from $22 on Monday, while CIBC analysts raised theirs from $23 to $27 last week. A BMO rating from April had a target of $26.

Barrick shares were at $19.20 at last check.

Now Read: Global Gold Demand Hits Record in Q2 As Investors Push Price Higher

Benzinga Mining is the bridge between mining companies and retail investors. Reach out to licensing@benzinga.com to get started!

Photo: Shutterstock