Barrick Gold stock (NYSE: GOLD) has fallen about 21% in the last two months, currently trading at about $17 per share. This compares to the S&P 500 which remains up by about 3% and gold prices which have fallen about 2% over the same period. The underperformance comes even though gold prices have been surging this year, rising from levels of around $2,050 per ounce in early January to about $2,650 currently – marking among the highest annual rise in a decade. Several factors have driven gold prices. U.S. inflation has been moderating, market volatility and geopolitical risks have diverted investors to the safe haven of gold. The Consumer Price Index for November rose by 2.7%, slightly higher than the 2.6% in October, and this could pave the way for a rate cut by the Fed in the near future. So why hasn’t Barrick – one of the largest gold producers in the world – stock risen with the tremendous increase in gold prices this year?
Barrick has faced significant operational challenges driven by production setbacks in the first half of the year, with a slower-than-expected ramp-up at the Pueblo Viejo mine, maintenance activities, and lower ore grades from some mines. Pueblo Viejo has however, increased quarterly production while lowering unit costs as part of ongoing plant ramp-up and stabilization in Q3 of 2024. In Q3 2024, Barrick sold 967,000 ounces of gold, a 6% decline from 1,027,000 ounces in the same quarter last year. Although Pueblo Viejo production will be higher in the current year compared to 2023, the difficulties experienced during the ramp-up phase is resulting in lower than expected levels of production. Additionally, though progress has been made at Turquoise Ridge in stabilizing the processing plant and increasing underground production, it has been slow and production is expected to be below expected levels. So, at a time when gold prices and margins are trending higher, Barrick has been plagued by operational issues which are expected to impact production in 2025 as well. Separately, if you want upside with a smoother ride than an individual stock, consider the High Quality portfolio, which has outperformed the S&P, and clocked >91% returns since inception.
The cost situation has been mixed as well. Barrick’s all-in sustaining costs rose 20% year-over-year, reaching $1,507 per ounce in Q3. This increase is likely due to lower production, which impacts economies of scale, along with inflationary pressures on inputs like labor. Additionally, higher gold prices could be leading miners to become less disciplined about controlling costs. The faster rise in costs for Barrick may be driving investors toward more cost-efficient mining companies.
The decrease in GOLD stock over the last 3-year period has been far from consistent, although annual returns were considerably less volatile than the S&P 500. Returns for the stock were -13% in 2021, -6% in 2022, and 8% in 2023. In contrast, the Trefis High Quality Portfolio, with a collection of 30 stocks, is less volatile. And it has outperformed the S&P 500 each year over the same period. Why is that? As a group, HQ Portfolio stocks provided better returns with less risk versus the benchmark index; less of a roller-coaster ride as evident in HQ Portfolio performance metrics. Given the current uncertain macroeconomic environment around rate cuts and multiple wars, could GOLD face a similar situation as it did in 2021 and 2023 and underperform the S&P over the next 12 months – or will it see a recovery?
Barrick’s performance is expected to pick up in Q4 and in the coming year, aided by the continuing ramp-up of the Pueblo Viejo plant expansion, increased throughput at Nevada Gold Mines and higher grades at Kibali. The company has recorded a 44% year-over-year increase in net earnings per share in nine months of 2024, driven by higher gold prices. Additionally, Barrick’s move to scale up its copper business could drive an additional upside for the stock, given its application in a host of futuristic industries including electric vehicles and the renewable energy sector. We have a $21 price estimate for Barrick Gold, which is roughly 25% above the current market price. See our analysis of Barrick Gold valuation for more details. Also, see our analysis of Barrick Gold Revenues for more details on the company’s key revenue streams and how they have been trending.
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