Better Buy: Barrick Gold Corp. vs. Goldcorp Inc.

Barrick Gold Corp. (TSX:ABX)(NYSE:ABX) and Goldcorp Inc. (TSX:G)(NYSE:GG) both reported higher profits and lower production costs in Q2 2017. Is one of these gold giants a better buy?

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Gold stocks tend to perform well following an interest rate hike, so it’s time to invest in the gold sector.

Barrick Gold Corp. (TSX:ABX)(NYSE:ABX) is the world’s largest gold mining company, and Goldcorp Inc. (TSX:G)(NYSE:GG) is the fourth-largest.

The two companies released their 2017 second-quarter results on July 26. You may wonder which company is a better buy. Let’s find out by comparing the two gold giants.

Barrick Gold Corp.

The biggest gold producer reported a 2017 second-quarter profit of $1.08 billion, or $0.93 per share.

Earnings, adjusted for non-recurring gains, were $261 million, or $0.22 per share. This is up 65.2% from $158 million, or $0.14 per share, in last year’s second quarter. Analysts had expected Barrick Gold to earn $0.18 per share. Year over year, Barrick Gold’s EPS has grown by 675%.

The Toronto-based company posted revenue of $2.16 billion for the quarter. This is up 7.5% from $2.01 billion last year.

Gold production in the second quarter was 1.43 million ounces — up 6.9% year over year. All-in sustaining costs, the industry benchmark, were $710 per ounce — down 9.2% and below estimates of $720-770. Those costs are among the lowest in the industry.

Barrick Gold was able to reduce its total debt by $309 million to $7.44 million. The company expects a full-year production of 5.3-5.6 million ounces and all-in sustaining costs of $720-770 per ounce.

Barrick Gold currently has a return on equity of 27.83%, a return on invested capital of 16.33%, and a net profit margin of 31.74%.

A few days ago, we learned that Tanzania’s government and Barrick Gold have started talks to resolve a tax dispute involving Acacia Mining. The government accused Acacia, in which Barrick holds a majority stake, of evading taxes over the years by under-declaring exports. Acacia denies the accusations and has been hit by a $190 billion tax bill.

Barrick Gold shares are down nearly 2% since the beginning of the year.

Goldcorp Inc.

Canadian gold producer Goldcorp reported better-than-expected earnings on July 26, helped by lower costs.

The world’s fourth-biggest gold producer by market value reported net earnings of $135 million, or $0.16 per share, for its 2017 second quarter, which ended June 30.

A year ago, the company reported a loss of $78 million, or $0.09. This loss was mostly due to a reduction in production at Penasquito, its biggest mine, following a maintenance shutdown and a slow restart.

Adjusted for one-off items, earnings were $0.12 per share, beating analysts’ estimate of $0.09 per share, on average, according to Thomson Reuters.

The Vancouver-based company produced 635,000 ounces of gold in the second quarter at a cost of $800 an ounce. This represents production that’s 4% larger than the 613,000 ounces of gold it produced at a cost of $1,067 per ounce in the second quarter of 2016.

Goldcorp left its 2017 gold production forecast unchanged at approximately 2.5 million ounces. However, it lowered its forecast for all-in sustaining costs to $825 an ounce from a previous $850, reflecting progress on its cost-reduction program.

Goldcorp currently has a return on equity of 3.48%, a return on invested capital of 3.51%, and a net profit margin of 13.22%.

Goldcorp’s share price is down more than 12% since the beginning of the year and is trading very near its 52-week low.

Which gold producer should you invest in?

By comparing the two gold giants, one is standing out from the other, even if the two have had a better-than-expected second quarter.

With continued profitability and net debt reduction, Barrick Gold is well in advance of Goldcorp. It also benefits from low cash costs and solid free cash flows. I bet that Barrick Gold is going to do better than Goldcorp in the months to come.

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 Stephanie Bedard-Chateauneuf has no position in any stocks mentioned.

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