Despite Strong Gold Prices, Barrick Stock Is Down 11% This Year. Is It A Good Bet?

Barrick Gold stock (NYSE: GOLD) has declined by about 11% year-to-date. The underperformance comes despite the fact that gold prices have been trending considerably higher, rising from levels of around $2,050 per ounce in early January to levels of over $2,300 per ounce currently, driven by cooling inflation, expectations of interest rate cuts by the Federal Reserve, and geopolitical uncertainties following the Israel-Gaza war.

However, there are a few factors driving Barrick’s recent underperformance. Barrick’s Q1 results, published last month, were weaker than expected as production faces headwinds. Attributable quarterly production for the quarter declined 1% year-over-year to 940,000 ounces of gold, a 1% decline from the year-ago period due to a slower-than-expected ramp-up of the Pueblo Viejo mine, some maintenance-related activity, and lower grades of ore extracted from some mines. Gold production was also down 10% sequentially. The company’s copper production also fell over the last quarter, due to lower grades of ore from its largest copper mine, Lumwana in Zambia, and weaker production from Zaldivar in Chile. Costs have also been trending higher due to lower economies of scale. Barrick’s all-in sustaining costs for the gold business came in at $1,474 per ounce over the last quarter, up by 8% compared to last year.

GOLD stock has suffered a sharp decline of 40% from levels of $25 in early January 2021 to around $15 now, vs. an increase of about 40% for the S&P 500 over this roughly 3-year period. However, the decrease in GOLD stock has been far from consistent. Returns for the stock were -17% in 2021, -10% in 2022, and 5% in 2023. In comparison, returns for the S&P 500 have been 27% in 2021, -19% in 2022, and 24% in 2023 – indicating that GOLD underperformed the S&P in 2021 and 2023.

In fact, consistently beating the S&P 500 – in good times and bad – has been difficult over recent years for individual stocks; for heavyweights in the Materials sector including LIN, RIO, and SCCO, and even for the megacap stars GOOG, TSLA, and MSFT. In contrast, the Trefis High Quality (HQ) Portfolio, with a collection of 30 stocks, 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 with high oil prices and elevated interest rates, 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 production is likely to pick up in the coming quarters, as the expansion of the Pueblo Viejo plant ramps up from Q2 while the Porgera mine restarts. For the full year, the company is guiding gold production of 3.90  to 4.30 million ounces. The stronger production should also help to drive down costs, with the company projecting the cost of sales of gold of $1,320 to $1,420 per ounce for the full year.  The sentiment towards precious metals prices has also generally been bullish considering the relatively tight supply and a move by central banks to diversify their reserves by holding more gold in place of the U.S. Dollar. Separately, Barrick’s move to scale up its copper business could drive an incremental upside for the stock, given its application in a host of futuristic industries including electric vehicles and the renewable energy sector. We have a $17 price estimate for Barrick Gold, which is slightly ahead of the current market price. See our analysis of Barrick Gold valuation: Expensive or Cheap 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.

[1] Returns as of 6/10/2024
[2] Cumulative total returns since the end of 2016

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