The Secret That Barrick Gold Doesn’t Want You to Know

Barrick, as well as its peers, is obscuring some very valuable information about production costs. So should you just buy a gold ETF instead?

| More on:
The Motley Fool

There is a constant debate raging among gold enthusiasts about which is better: buying gold mining stocks, or buying a gold ETF? To answer that question, one has to answer a few other questions about the miners. How much do they mine? Are their productions growing? What do their balance sheets look like? How much does it cost them to produce an ounce of gold?

This last question is crucial, but very difficult to answer, and this is no accident. Let me explain, using Barrick Gold (TSX: ABX)(NYSE: ABX) as an example.

How much does it cost?

Just looking at Barrick’s annual report is enough to make someone’s head spin. The company presents no less than three different ways to measure unit costs: adjusted operating costs per ounce, all-in sustaining costs per ounce, and all-in costs per ounce.

Here’s what I would like to know instead. One, how much does it cost to find an ounce? Two, how much does it cost to dig it out of the ground? Finding that exact information in Barrick’s numbers is not easy.

What happens if one just uses the final number, “all-in costs” per ounce? After all, production is not growing at Barrick, so every dollar the company spends seems to be in an effort to maintain its current output. Well, that number was about $1,300 last year. This is where the price of gold is today. So there’s a very good chance that gold prices need to rise for Barrick to be profitable at all.

The same at other companies

Looking at other companies tells a similar story. For example, Kinross Gold (TSX: K)(NYSE: KGC) reports a number for “attributable production cost of sales from continuing operations per equivalent ounce sold” and “attributable all-in sustaining cost from continuing operations per equivalent ounce sold”. Is this confusing enough?

Kinross emphasizes the second number, implying that it is the most important one. However, that number excludes more than half of capital expenditures. Like Barrick, Kinross isn’t growing — so why are so many costs excluded? Unlike Barrick, Kinross doesn’t even present an “all-in costs” number. If it did, it would come in at over $1,350.

So what should you do?

It’s quite simple. If you think the price of gold is going to rise, then buy a gold ETF. Two options are the Claymore Gold Bullion ETF (TSX: CGL) and the iShares Gold Trust (TSX: IGT)(NYSE: IAU). With either of these options, you don’t have to worry about
confusing annual reports or skyrocketing costs.

If you’d rather invest in stocks, you should avoid gold altogether.

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 Benjamin Sinclair has no position in any stocks mentioned.

More on Investing

Canadian flag
Dividend Stocks

1 Magnificent Canadian Dividend Stock Down 8% to Hold for Decades

Do you want some dividends with those returns? Then buy this stock while it's down.

Read more »

A worker overlooks an oil refinery plant.
Energy Stocks

Suncor Energy: Buy, Sell, or Hold in 2025?

Let's dive into the risks and catalysts underpinning Suncor Energy (TSX:SU) right now and see if this stock is worth…

Read more »

A plant grows from coins.
Stocks for Beginners

Rebalancing Your Portfolio for 2025? 3 Growth Stocks to Consider

There's no shortage of great growth stocks to consider for your portfolio. Here's a look at three that could provide…

Read more »

calculate and analyze stock
Dividend Stocks

2 Stocks That Cut You a Cheque Each Month

These two top Canadian monthly dividend stocks could help you generate reliable passive income for years to come.

Read more »

engineer at wind farm
Dividend Stocks

Fortis Stock: Buy, Sell, or Hold in 2025?

With Fortis now trading just off its 52-week high, is it still one of the best Canadian stocks to buy…

Read more »

Women's fashion boutique Aritzia is a top stock to buy in September 2022.
Investing

From Markdown to Mark-Up, 2 Red-Hot Clothing Stocks Leading the Revival

Aritzia (TSX:ATZ) and another clothing stock could keep soaring through another year!

Read more »

Investor reading the newspaper
Investing

Where to Invest $3,000 in February

Given their solid underlying businesses and healthy growth prospects, the following three TSX stocks would be ideal buys despite the…

Read more »

RRSP Canadian Registered Retirement Savings Plan concept
Dividend Stocks

The 3 Best Canadian Stocks to Buy Now and Hold Forever in an RRSP

There's a lot to consider when eyeing up some long-term holds in an RRSP, so let's get into it.

Read more »