Are Mining Companies Good Investments?

As gold prices hold below US$1,100 per ounce, Barrick Gold Corp. (TSX:ABX)(NYSE:ABX), Goldcorp Inc. (TSX:G)(NYSE:GG), and Kinross Gold Corporation (TSX:K)(NYSE:KGC) are doing everything they can to remain profitable.

| More on:
The Motley Fool

Gold producers would love nothing more than to erase the past five years of gold-price fluctuations. Looking back to the end of the summer in 2011, gold prices were approaching US$2,000 per ounce. Gold producers were making profits hand over fist, and the future for mining companies looked bright.

And then gold prices tumbled, losing nearly 50% over the course of the past five years. For gold producers, it has been a scramble ever since to cut costs, reduce staffing levels, and scale back projects to remain profitable.

To answer the question of whether or not these mining companies are still good investments, let’s take a look at the large gold producers and how they are faring.

Barrick Gold Corp. (TSX:ABX)(NYSE:ABX) is focused on both reducing costs and increasing efficiencies. The company has a stated goal of $2 billion in cuts. Just in the past year alone the company has cut the dividend and sold a number of assets, pushing Barrick to meeting that goal.

Barrick is also actively engaged in reducing the debt that the company owes. The company similarly set a target to slash $3 billion off of total debt for 2015 and appears to have met that target.

The belt tightening at Barrick seems to be working well. The company posted a $9 million loss in the most recent quarter, which, when viewed in contrast to the $269 million loss for the same quarter last year, can be viewed as a massive improvement.

Goldcorp Inc. (TSX:G)(NYSE:GG) is one the largest and most efficient gold producers in the world. The company has mines across North, Central, and South America.

Goldcorp has been countering the current dip in two ways. The company has significantly reduced costs, become more efficient in operations, and has been able to step up production levels. By way of example, in the most recent quarter Goldcorp produced a record 922,000 ounces of the precious metal, which represented an impressive 40% increase over the previous year.

In terms of cost reduction, Goldcorp can proudly boast all-in sustaining costs of $848 per ounce. What’s better is that there is still room for this figure to drop more, effectively ensuring the company can still compete and be profitable even if gold prices plunge further.

Kinross Gold Corporation (TSX:K)(NYSE:KGC) is the fifth-largest producer in the world with mining locations across the Americas, Russia, and Africa.

Kinross’s focus is on reining in costs and expanding in to new growth opportunities. The company proudly proclaimed in the most recent quarter that net debt was down to $949.2 million, and the company had $1024.8 million in cash and cash equivalents.

In terms of growth, the company recently purchased 100% of the Bald Mountain gold mine from Barrick in addition to 50% of the Round Mountain gold mines in Nevada. Both mines are slated to add up to 430,000 ounces to production over the next few years.

In my opinion, investing in metals in the current market is extremely risky, even with the considerable efforts by some companies to become more efficient, increase production, and expand in to new markets.

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 Demetris Afxentiou 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 »