2 Reasons to Avoid Barrick Gold Corp., and 1 Stock to Buy Instead

Barrick Gold Corp. (TSX:ABX)(NYSE:ABX) has made a lot of progress on the cost-cutting front. But this is still a stock you should stay away from.

| More on:
The Motley Fool
You’re reading a free article with opinions that may differ from The Motley Fool’s premium investing services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn more

Every day, there seems to be a new story about Barrick Gold (TSX: ABX)(NYSE: ABX) and its continuing efforts to turn itself around. Most recently, the news concerns shakeups at corporate headquarters. CEO Jamie Sokalsky is stepping down, and the corporate development department is being eliminated.

The moves are just the latest in a long series of cost-cutting decisions. And to the company’s credit, costs have decreased significantly. But the company’s stock price remains depressed. Is this an opportunity to buy?

Well, not exactly. Below, we take a look at two reasons to avoid shares of Barrick and one stock to buy instead.

2 reasons to avoid Barrick

1. Short term vs. long term

At first, it may appear that Barrick has made some real progress on cutting costs. To illustrate, all-in sustaining costs came in at $865 per ounce in the most recent quarter, and all-in costs came in at $945 per ounce. A year ago, these numbers were $910 and $1,267, respectively. But this isn’t as great as it first appears.

First of all, Barrick has sold some high-cost mines. For example, it sold three high-cost Australian mines last year right into a buyer’s market, at what was surely a fire-sale price. Moves like that, which aren’t real cost-cutting moves, have helped Barrick’s numbers.

But even at existing mines, Barrick’s cost-cutting may not be helping the company. For example, at Goldstrike (a large mine in Nevada), all-in sustaining costs decreased from $1,226 to $886 year over year. But that’s because Barrick focused on mining much higher-grade ore. The company also cut sustaining capital expenditures by 15%. Such a strategy is not sustainable in the long run if the company wants to maintain production levels.

The important point is that Barrick has very little flexibility and must take drastic action to reduce costs. That includes selling high-cost mines at bargain prices, as well as foregoing what may be necessary investment. Shareholders may have to suffer some serious long-term consequences.

2. A culture problem

A source recently told The Globe and Mail that “morale is low” at Barrick headquarters. This is a lot like hearing that salt is salty.

With so many staff reductions, it can be difficult for a company to perform its best. Certain employees are likely spending part of their time updating their resumes. It will also be difficult to recruit top performers to work at the company.

These are the types of things that don’t show up in the financial statements and shareholders don’t get to see for themselves. But they still have a big impact in the long run.

1 stock to buy instead: Franco-Nevada

Franco-Nevada (TSX: FNV)(NYSE: FNV) is in the gold business, but doesn’t actually mine any gold itself. Instead, it enters into royalty agreements with producers, whereby Franco receives royalty payments in exchange for cash up front.

This makes Franco immune to many of the problems that beset regular producers, such as operational mishaps, capital cost overruns, and labour problems. Better yet, Franco has a wonderful track record, with its stock price having returned 16% over the past five years (compared to Barrick’s -12%).

So Franco-Nevada is simply a better way to bet on the price of gold, despite Barrick’s best efforts. And that will likely remain the case for a long time.

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.

More on Metals and Mining Stocks

Gold bars
Metals and Mining Stocks

1 Top Canadian Gold Stock to Buy Immediately

This Canadian gold mining stock looks cheap at current levels, and it could be an excellent play if you are…

Read more »

TSX Today
Metals and Mining Stocks

TSX Today: What to Watch for in Stocks on Monday, August 15

Mining and energy shares on the TSX could open lower Monday due mainly to an early morning decline in commodity…

Read more »

gold stocks gold mining
Metals and Mining Stocks

Gold Could Be on the Cusp of a Major Upside Move: Here’s How to Play it

Kinross Gold (TSX:K)(NYSE:KGC) stock is a relative bargain to play a recovery in the price of gold.

Read more »

Gold bullion on a chart
Metals and Mining Stocks

Is Barrick Gold (TSX:ABX) a Strong Buy? Profit Surges Almost 19% in Q2 2022

TSX’s top mining stock should be a strong buy in August after the gold miner reported a 19% profit growth…

Read more »

grow dividends
Metals and Mining Stocks

Barrick Gold Stock Looks Primed for Takeoff

Barrick Gold (TSX:ABX)(NYSE:GOLD) stands out to me as a glimmer of value in this choppy market environment.

Read more »

gold stocks gold mining
Metals and Mining Stocks

Agnico Eagle Mines: The Best Gold Stock of the Batch Right Now?

Agnico Eagle Mines (TSX:AEM)(NYSE:AEM) stock looks cheap ahead of a potential relief rally in the price of various precious metals,…

Read more »

TSX Today
Metals and Mining Stocks

TSX Today: What to Watch for in Stocks on Tuesday, August 9

The ongoing corporate earnings season and the U.S. Energy Information Administration’s latest short-term energy outlook report could keep TSX stocks…

Read more »

Hand arranging wood block stacking as step stair with arrow up.
Dividend Stocks

These 3 TSX Stocks Have Doubled Over 3 Years: Can They Do It Again?

Three TSX stocks whose share prices have doubled in three years are well-positioned to repeat history and reward investors with…

Read more »