Why does Barrick's Share Price Decrease despite Rising Gold Prices?
Why does Barrick's Share Price Decrease despite Rising Gold Prices?
Barrick Gold (NYSE: GOLD) stock has dropped around 21% in the last two months, currently trading at about $17 per share. This is contrasted with the S&P 500, which is still up by about 3%, and gold prices, which have decreased approximately 2% in the same period. Despite gold prices soaring this year, from around $2,050 per ounce in early January to $2,650 currently, marking one of the highest annual increases in a decade, Barrick's stock hasn't kept pace.
Barrick has encountered various operational hurdles, including production issues at the start of the year, causing a slower-than-anticipated ramp-up at the Pueblo Viejo mine, maintenance activities, and lower-than-expected ore grades from some mines. Despite this, Pueblo Viejo has managed to boost quarterly production while reducing unit costs during Q3 of 2024 as part of the plant's ongoing ramp-up and stabilization. In Q3 2024, Barrick sold 967,000 ounces of gold, a 6% decrease from 1,027,000 ounces in the same quarter the previous year. Although Pueblo Viejo's production will be higher in the current year than in 2023, the difficulties faced during the ramp-up phase are resulting in lower than anticipated production levels. Additionally, while progress has been made at Turquoise Ridge in stabilizing the processing plant and increasing underground production, it's been slow, and production is expected to be beneath expectations.
At a time when gold prices and margins are trending upward, Barrick has been grappling with operational issues, which are projected to impact production in 2025 as well. If you're seeking upside with a smoother ride than an individual stock, consider the High Quality Portfolio, which has outperformed the S&P 500 and reported over 91% returns since inception.
The cost situation has been a mixed bag as well. Barrick's all-in sustaining costs increased 20% year-over-year, reaching $1,507 per ounce in Q3. This increase might be attributable to lower production, which impacts economies of scale, along with inflationary pressures on inputs such as labor. Higher gold prices could also lead miners to be less disciplined in managing costs. Barrick's faster cost increase could be pushing investors towards more cost-efficient mining companies.
Barrick's stock performance has been inconsistent in the last 3 years, although annual returns were less volatile than the S&P 500. Returns for the stock were -13% in 2021, -6% in 2022, and 8% in 2023. The Trefis High Quality Portfolio, comprised of 30 stocks, has been less volatile and has outperformed the S&P 500 each year over the same period. Why is that? As a group, High Quality Portfolio stocks have provided better returns with less risk compared to the benchmark index, offering a less roller-coaster-like ride, as evident in High Quality Portfolio performance metrics.
Given the current uncertain macroeconomic environment surrounding rate cuts and multiple wars, could Barrick face a similar situation as it did in 2021 and 2023 and underperform the S&P 500 over the next 12 months - or will it recover? Barrick's performance is projected to improve 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 the first nine months of 2024, driven by higher gold prices. Barrick's move to expand its copper business could provide an additional upside for the stock, given its application in various futuristic industries such as electric vehicles and renewable energy. We have a $21 price estimate for Barrick Gold, which is around 25% higher than its current market price. See our analysis of Barrick Gold valuation for more details. Also, see our analysis of Barrick Gold Revenues for more insights into the company's key revenue streams and their trends.
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Despite Barrick Gold's operational challenges leading to lower-than-expected production, the company still recorded a significant 44% year-over-year increase in net earnings per share in the first nine months of 2024, driven by higher gold prices. However, Barrick's gold valuation, as analyzed by Trefis, remains below its current market price with a $21 price estimate, indicating potential investment opportunities.