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

A worker wears a hard hat outside a mining operation.
Metals and Mining Stocks

Ivanhoe Mines: Buy, Sell, or Hold in July 2025?

Here's what to consider before trading Ivanhoe Mines stock this month. Watch out for July 30th!

Read more »

nugget gold
Metals and Mining Stocks

New Gold: Buy, Sell, or Hold in July 2025?

New Gold is a TSX mining stock that has returned over 100% to shareholders in the last 12 months. Is…

Read more »

todder holds a gold bar
Metals and Mining Stocks

1 Gold Mining Stock That’s My Inflation Protection Play

Agnico Eagle Mines stock has generated inflation-beating returns over the past decade, and the gold stock retains strong growth momentum

Read more »

space ship model takes off
Metals and Mining Stocks

Where Will Barrick Gold Be in 3 Years?

Let's dive into the three year outlook for Barrick Gold (TSX:ABX), a top global player in the increasingly competitive precious…

Read more »

A plant grows from coins.
Metals and Mining Stocks

2 Mining Stocks That Are Screaming Buys in June

Rising metal prices are lifting many mining stocks, but these two companies could still deliver big gains from here.

Read more »

Super sized rock trucks take a load of platinum rich rock into the crusher.
Metals and Mining Stocks

2 Mining Stocks I’d Buy With $7,500 Whenever They Dip in Price

Here's why any price dips on Cameco stock and another large-cap mining stock should be lucrative buying opportunities over the…

Read more »

money goes up and down in balance
Dividend Stocks

2 Incredibly Cheap Growth Stocks to Buy Now

These two growth stocks are both unbelievably cheap and have significant long-term potential, making them some of the best to…

Read more »

nugget gold
Metals and Mining Stocks

Going for Gold? How the Precious Metal Stocks, ETFs, and Funds Stack Up

With uncertainty in the economy continuing to drive the price of gold higher, here are the best stocks to buy…

Read more »