We recently compiled a list of the 10 Best Gold Mining Companies to Invest in. In this article, we are going to take a look at where Barrick Gold Corporation (NYSE:GOLD) stands against the other gold mining stocks.
Gold has reached an all-time high, capping a 20-month rally with a 50% increase. Although the selling pressure from the retail investor would have an adverse affect on gold prices, however, this surge is driven by central banks buying record volumes of bullion mainly due to the desire to reduce dependence on US dollar, conflicts in the Middle East, and strong demand from Chinese consumers amid disappointing local equities, property, and currency markets. Furthermore, Chinese political leaders noticed that financial assets of the Russian government including bonds and reserves got confiscated by Western governments after Russia invaded Ukraine. Christopher Mancini, who co-manages Gabelli Gold Fund says “The Chinese central bank saw that happened and said ‘We don’t want that to happen to us.’ It would make sense for them to want to significantly retire their [U.S.] dollar reserves. With gold, they don’t have to worry about being repaid. We know they have been buying a consistent amount of gold every day.”
Bernard Dahdah from Natixis suggests central banks might continue buying gold due to tensions between the US and China, potentially making prices above $2,300 the new norm. The move to gold also reflects a broader trend of nations reducing their reliance on the U.S. dollar, prompted by the dollar’s use as a geopolitical tool against Russia, leading to gold prices reaching an all-time high of $2,480 per ounce on July 17, 2024. In U.S. the Fed is expected to cut the Fed funds rate, but inflation may remain steady, leading to lower real interest rates. This scenario benefits gold as the opportunity cost of holding non-interest-bearing gold decreases compared to cash and bonds. Additionally, a decline in U.S. real interest rates may weaken the U.S. dollar, making gold, which is globally priced in dollars, more attractive.
Owning gold directly provides a “store of value” but offers limited returns rather than generate substantial gains like equities. However, other than its appeal in its ability to preserve value, many investors view it as a hedge against economic troubles rather than a high-return investment. So an investor otherwise seeking gold as a soaring investment would be disappointed in the longer term as it doesn’t appreciate by much as gold has risen less than 300% in a century with annualized real returns of 1.34%, adjusted for inflation. Therefore investors looking for a more aggressive approach, aim for gold mining stocks that provide leverage to the gold price that yields returns surpassing those of the underlying commodity.
Despite this leverage, the underlying stock valuations will consider future cash flows and market volatility of the gold as well as the consensus price estimates by market participants. Nonetheless, gold miner stocks should be more volatile than gold itself, offering greater returns if the investor’s thesis on rising gold prices is correct.
Regardless of gold prices rising over the last 15 years, gold mining ETFs and major miners (Agnico, Newmont, Barrick) have underperformed compared to physical gold. Although some companies covered in this article have succeeded, the gold mining sector requires careful scrutiny beyond just reserves and production. Like any other investment that is carefully analyzed mining companies need to be analysed based on management, capital allocation, and geopolitical risk. It is also because of these factors that gold mining companies are unable to reach their potential as viable investments.
Methodology
To curate our list of 10 Best Gold Mining Companies to Invest in, we gathered a list of all companies using the holdings of gold miners ETFs. We then further narrowed down on the basis of their upside potential. With this let’s now jump to our list of the 10 Best Gold Mining Companies to Invest in.
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A miner examining yellow gold ore in a mine shaft, symbolizing the company’s exploration process.
Barrick Gold Corporation (NYSE:GOLD)
Current Price: $18.38
Upside Potential: 22%
Barrick Gold Corporation (NYSE:GOLD) engages in the exploration, mine development, production, and sale of gold and copper properties. This leading international gold mining enterprise, headquartered in Toronto, Canada, holds a substantial footprint in the global mining sector. Barrick Gold Corporation (NYSE:GOLD) is the top 11th mining company in the world by revenue, operating in over 13 countries. In Q1 2024, Barrick Gold Corporation saw a significant 143% increase in year-over-year net earnings per share, with adjusted EPS rising to $0.19 from $0.14 in Q1 2023, surpassing analysts’ expectations. The company’s EBITDA margin improved by 5%, reaching 41%, and operating cash flow was strong at $760 million. This performance was driven by higher gold prices and the successful ramp-up of the Goldrush mine. The Goldrush mine at Cortez, where Barrick holds a 61.5% stake, began production with an initial output of 130,000 ounces expected in 2024, projected to reach 400,000 ounces by 2028. Following the positive Q1 earnings announcement, Barrick’s stock rose 14% in the past month. Barrick’s growth continued with Q2 2024 production reaching 948,000 ounces of gold, up from 940,000 ounces in Q1, driven by increased production at Turquoise Ridge, Porgera, Tongon, North Mara, and Kibali. The average market price of gold in Q2 was $2,338 per ounce. With rising production, increasing gold prices, and decreasing costs, Barrick’s growth outlook remains strong for the upcoming quarters.
Old West Management made the following comment about Barrick Gold Corporation (NYSE:GOLD) in its Q4 2022 investor letter:
“Barrick Gold Corporation (NYSE:GOLD) is the second largest gold miner in the world, with operations in the U.S., Canada, Africa, South America and more. Barrick is also a major copper producer. Former Goldman Sachs executive John Thornton took control of the company in 2012 and quickly realized he wanted someone with a mining background to run the company. Mark Bristow, at that time CEO of Randgold, was considered one of the best gold mining executives in the world. Thornton wanted Bristow so badly Barrick bought Randgold in 2018. Bristow, who is South African, had extensive experience operating mines throughout Africa, and in fact would fly his own single engine plane to visit mines. He has his PhD in Geology, and he has flourished running Barrick the past five years.
Barrick is estimated to have $1.6 billion of net income this year on $11.5 billion of revenue. Net Income has been growing 15% per year. The stock trades at $19.00 per share which is 16 times forward earnings, and the stock has a 3.15% dividend yield. Barrick has a fortress balance sheet with $5.7 billion in cash and $5 billion of long term debt, which is only one time EBITDA.”
Overall GOLD ranks 3rd on our list of the best gold mining stocks to buy. You can visit 10 Best Gold Mining Companies to Invest in to see the other gold mining stocks that are on hedge funds’ radar. While we acknowledge the potential of GOLD as an investment, our conviction lies in the belief that AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than GOLD but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article is originally published at Insider Monkey.