Well investors really have a strong reason to question Barrick Gold. Think back to 2011, when gold prices were trading around $1,900 an ounce. At that time, ABX stock was trading close to $50.00. Only four years later, ABX stock is trading just slightly above $7.00. In other words, Barrick stock has declined by more than 80% in value.
With ABX stock, investors should be thinking long-term. Know that one of the biggest reasons the stock prices plunged was the decline in gold prices. To give you an idea of how closely ABX stock follows gold prices, please look at the chart below; it plots gold prices (black line), Barrick’s stock price (grey line), and the correlation between the two.
Notice something interesting? Barrick stock is highly correlated with gold prices, moving in the same direction.
Chart courtesy of www.StockCharts.com
Barrick Gold’s Financials Point to Higher ABX Stock
You see, when looking at Barrick, and any other mining company, for that matter, you have to separate gold prices and business operations. Barrick Gold’s financials suggest the business at the company remains solid.
On October 28, the company reported its financial results for the third quarter of 2015. It did show a loss, and this isn’t surprising whatsoever. (Source: “Barrick Reports Third Quarter 2015 Results,” Barrick Gold Corporation, October 28, 2015.)
Pay attention to what the company is doing regarding its gold production, production costs, debt management, and cash flow generation. Essentially, these are the factors that tell if the company can remain “in the game” for the long-term.
Barrick Gold is keeping its gold production consistent. In the third quarter, it produced 1.66 million ounces and is on track to produce another 6.1 million ounces to total 6.3 million ounces for 2015.
Its costs to produce are low. Barrick Gold produced an ounce of silver at an all-in sustaining cost of $771.00 in the third quarter and is on track to reduce production costs to a range of $300.00 an ounce to $870.00 an ounce for 2015.
As for debt, Barrick Gold has reduced its debt by 15% year-to-date. What about free cash flow? For the first nine months of 2015, free cash flow came in at $694 million. This is compared to just $40.0 million a year ago, representing an increase of more than 1,600%.
What Does All of This Mean for ABX Stock?
Barrick Gold is making solid strides despite lower gold prices. At the very least, as I see it, it may be time investors pay some attention to Barrick stock. You have to look at investments when they are down and other investors don’t even give them a second glance.
Once gold prices increase (you can read more here on where I think the yellow metal could go), ABX stock could be in great shape to provide investors with solid returns.