Is Barrick Gold Corp. a Good Investment?

A reduction in debt, greater efficiency improvements, and a steady rise in gold prices have contributed to making Barrick Gold Corp. (TSX:ABX)(NYSE:ABX) an attractive option for investors.

| More on:
The Motley Fool

Barrick Gold Corp. (TSX:ABX)(NYSE:ABX) is one of the few gold companies that has managed to take advantage of prolonged low gold prices to put real focus on reducing costs, becoming more efficient, and making a concerted effort to reduce debt.

Here’s a look at how Barrick is doing, what the company has done to rein in costs, and if it is now a good investment.

How’s Barrick doing?

Barrick currently trades at $17.66. Year-to-date, the stock is up by 72%, although much of this gain is effectively erasing the losses it sustained in the past few years. Looking back over the course of a full 12-months reveals that Barrick’s stock price is still down by nearly 8%.

While Barrick’s surge in stock price is impressive, the real feat is what the company has accomplished in the past year in terms of debt reduction, operational cost cuts, and efficiency improvements.

Lowering debt, increasing efficiency

Barrick is in the midst of a turnaround and so far is doing a great job. Looking back a year, the company had a staggering US$13 billion in debt, which coincidentally was nearly the market cap of the company for part of that year. As an aside, it is not uncommon for gold producers to carry large debt loads, but Barrick had one of the largest, which is what makes this next part so impressive.

Despite low gold prices and immense debt, Barrick underwent an ambitious plan to reduce debt by US$3 billion, nearly 25%, by the end of the year. Amazingly, Barrick managed to meet this goal through a series of sales, partnerships, and deals.

Barrick successfully reduced costs last year. It reduced corporate staffing levels by 50% and all-in sustaining costs below US$800 per ounce. By bringing costs under control, Barrick effectively became one of the most efficient gold producers on the market in a relatively short time.

The impact of these savings is far reaching for Barrick as the price of gold has since risen significantly, meaning those savings can provide a major boost to revenue. By way of example, only just a few months ago the price of gold was hovering near US$1,060 per ounce. The price is now over US$1,230. Between lowered costs and a rise in gold prices, Barrick suddenly has an extra US$300 per ounce.

Looking ahead to the rest of 2016

Gold stocks have had a particularly rough time over the past few years, and the recent rally can be interpreted in any number of ways. What can be said is that the concept of using gold as a safe store of wealth, which has been absent or minimized for the past few years, is starting to gain traction again, albeit slowly.

Another factor is the potential for negative positions on government bonds and the overall health of the economy, which will reinforce the metal’s safe-haven status. Over the long term, anything that helps the price of gold will help Barrick.

The key point for Barrick is that it needs to continue doing what has been done so admirably in the past year–slash debt, reduce costs, and become more efficient.

The company has plans to continue reducing debt by a further US$2 billion this year and all-in sustaining costs by US$100-700 by the end of the year.

While metals remain an extremely risky investment, there is something to be said about the improvements that Barrick has made, which could warrant a small position in the stock.

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

Canadian Dollars bills
Metals and Mining Stocks

2 Cheap Canadian Stocks Under $20 to Buy This November

Cheap TSX stocks such as Endeavour Silver are trading at an attractive valuation in November 2024.

Read more »

nugget gold
Metals and Mining Stocks

Is Franco-Nevada Stock a Buy for its 1.06% Dividend Yield?

A top gold stock with a modest yield is a buy for its lengthy dividend-growth streak.

Read more »

todder holds a gold bar
Metals and Mining Stocks

Canadian Mining Stocks: Buy, Sell or Hold?

Investing in quality gold mining stocks that trade at a reasonable valuation could help you beat the TSX index over…

Read more »

People walk into a dark underground mine.
Metals and Mining Stocks

Is First Quantum Minerals Stock a Buy?

Let's dive into whether First Quantum Minerals (TSX:FM) is worth buying at current levels, or if investors should sit this…

Read more »

nugget gold
Metals and Mining Stocks

Competitive? Beat the Market With These 2 Dividend-Paying Growth Gems

Investors looking to beat the market buying dividend stocks right now need to focus on this right sectors. Here are…

Read more »

nugget gold
Metals and Mining Stocks

A Canadian Billionaire Investor Sold Micron Stock and Bought This TSX Company Instead

Prem Watsa focuses on value over short-term growth.

Read more »

Concept of multiple streams of income
Metals and Mining Stocks

Is Franco-Nevada Stock a Buy for Its 1.2% Dividend Yield?

Gold royalty stocks represent a niche in the precious metals industry. They have different dynamics from mining stocks.

Read more »

todder holds a gold bar
Metals and Mining Stocks

The 1 Mining Stock Canadians Should Buy and Hold Forever

Newmont is a gold mining stock that trades at a cheap valuation, making it a top investment choice for those…

Read more »