Why Barrick Gold Corp. Is a Better Long-Term Play Than Goldcorp Inc.

I’ll take a look at why Barrick Gold Corp. (TSX:ABX)(NYSE:ABX) may turn out to be a better long-term bet than Goldcorp Inc. (TSX:G)(NYSE:GG).

| More on:
The Motley Fool

With gold prices on the rebound, and a number of Canadian gold companies reporting solid 2016 results, investors are looking for the best of the biggest gold companies. I’ll take a look at why Barrick Gold Corp. (TSX:ABX)(NYSE:ABX) may turn out to be a better long-term bet than Goldcorp Inc. (TSX:G)(NYSE:GG).

Why compare these two companies?

For one, these are two of the largest gold producers in Canada with market capitalizations over $10 billion and diverse, established mining operations around the world. Canada has some of the world’s largest and best-run mining companies in the world, so comparing two of the top choices seemed logical.

And two, both companies have reported vastly improved year-end results this past week, reporting profitability for the first time in years. Now is a very interesting time to take a look at just how successful these two behemoths have been in generating value for shareholders.

Which fundamentals should be considered?

I’ll look at the strength of each company’s mining operations by considering each company’s margins as well as their profitability using return on equity (ROE) as the primary metric. I’ll also assess return on assets (ROA).

The reason I focus on margins in comparing these two companies is because the amount of value that each company will be able to generate independent of the spot price of gold is determined by the strength of the company’s underlying operations. When putting hard-earned investment dollars to work in a gold company for any significant period of time, it is very important that investors compare and contrast the ability of the company to make money in good times and in bad.

It appears as though Barrick wins on both fronts, having performed much better in 2016 both in terms of margins and profitability metrics. Given the fact that 2016 was a bumpy year for gold prices, analyzing the year ends for both companies is an interesting case study in how each company managed the up-swings and down-swings in the market.

Barrick’s gross and net profit margins were 7.7% and 30%, respectively, compared with Goldcorp’s gross and net margins of 4.6% and 5.8%.

In terms of profitability, Barrick again outperformed. Using ROE as our primary metric, we can see significant outperformance: Barrick’s ROE sat at 8.7% compared with Goldcorp’s 1.2%, and ROA was much the same. Barrick’s ROA came in at 6.2% compared with Goldcorp’s 0.6% ROA.

Assessing the return on each company’s assets is also a useful activity in the mining sector since asset acquisitions tend to be very expensive in the mining industry and largely financed by debt, meaning a higher ROA is an indication the assets the company has purchased have been put to work effectively.

Conclusion

As of right now, we can see that both companies have generated very positive 2016 results, turning a profit amid rebounding gold prices. That said, Barrick stands out due to its operational performance and ability to generate superior returns for shareholders in a time of tumultuous gold prices.

Stay Foolish, my friends.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Chris MacDonald has no position in any stocks mentioned.

More on Metals and Mining Stocks

Gold bars
Metals and Mining Stocks

Why Alamos Gold Jumped 7% on Wednesday

Alamos (TSX:AGI) stock and Argonaut Gold (TSX:AR) surged after the companies announced a friendly acquisition for $325 million.

Read more »

Nuclear power station cooling tower
Metals and Mining Stocks

If You’d Invested $1,000 in Cameco Stock 5 Years Ago, This Is How Much You’d Have Now

Cameco (TSX:CCO) stock still looks undervalued, despite a 258% rally. Can the uranium miner deliver more capital gains to shareholders?

Read more »

Super sized rock trucks take a load of platinum rich rock into the crusher.
Stocks for Beginners

Cameco Stock and More: 3 TSX Commodity Titans to Watch in 2024

Cameco stock and these others will provide you with growth that goes beyond just a year or two, with all…

Read more »

Handwriting text writing Are You Ready For Tomorrow question. Concept meaning Preparation to the future Motivation Stand blackboard with white words behind blurry blue paper lobs woody floor.
Stocks for Beginners

3 Reasons to Buy Lundin Stock Like There’s No Tomorrow

Lundin stock (TSX:LUN) has been killing its production of copper and plans on blowing its records out of the water…

Read more »

Gold bars
Stocks for Beginners

TSX Materials in March 2024: The Best Stock to Buy Right Now

Materials have been quite volatile, though the price of gold has surged to all-time highs. That makes this stock a…

Read more »

Gold bars
Metals and Mining Stocks

Will Gold Stocks Rally in 2024?

Down almost 30% from all-time highs, Franco-Nevada is a gold mining stock trading at a discount to consensus price target…

Read more »

A miner down a mine shaft
Stocks for Beginners

Canadian Mining Stocks: Buy, Sell or Hold?

Canadian mining stocks have seemed like such a strong investment, but with shares down significantly this year, what should we…

Read more »

Gold king in chess game face with the another silver team on black background (Concept for company strategy, business victory or decision)
Stocks for Beginners

Great News for Gold Stock Investors!

Gold has hit an all-time high! Which is good news for some gold stocks, and really good news for others.

Read more »