uploads///Gold miners performance

Will Barrick Gold See Any Upside Going Forward?

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Nov. 20 2020, Updated 4:47 p.m. ET

Barrick Gold underperforms

Barrick Gold (ABX) stock has fallen 30% year-to-date, and it has underperformed relative to its peers in the gold sector. The VanEck Vectors Gold Miners ETF (GDX) has fallen 23.3%, and the SPDR Gold Trust (GLD), which tracks the spot price of gold, has fallen 6.9%.

Barrick’s peers Newmont Mining (NEM), Goldcorp (GG), and Agnico Eagle Mines (AEM) have fallen 11.9%, 23.1%, and 12.2%, respectively.

Barrick’s relative underperformance is mainly due to its high debt profile. In the absence of acquisitions or mine extensions, the promise of declining production after 2017 is also weighing down the stock.

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Taking steps in the right direction

Though its production profile is more or less flat year-over-year for the next three years, it’s delivering strong results on the cost-cutting front. This has led to a laudable reduction in AISC (all-in sustaining costs) per ounce. Potential growth projects should also deliver production growth at lower AISC going forward.

Upside potential

Going forward, some of its projects could deliver long-term production upside, including Lagunas Norte and Pueblo Viejo. Barrick’s new gold discovery, Alturas, in the Andean region of Chile, could also provide an upside to its production profile. The company is expected to report an initial resource estimate for Alturas at the end of the year.

Barrick Gold’s high financial leverage is a key concern for investors. Given the current steps it’s taking, it should be able to reduce its debt. And this could lead to a significant rerating of Barrick, which would be positive for the firm’s share price.

Investors who don’t want to pick up individual companies can invest in gold miners through the VanEck Vectors Gold Miners ETF (GDX). This ETF invests in senior and intermediate gold miners. Newmont forms 6.4% of its holdings. The SPDR Gold Trust (GLD), meanwhile, provides exposure to spot gold prices.

For more on gold prices, visit our Gold ETFs page.

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