By Reuben Gregg Brewer
Your take on the gold and precious metals sector depends a lot on your reference point. And to some degree, that's going to help determine whether you see Barrick Gold (NYSE:ABX), Newmont Mining (NYSE:NEM), and Goldcorp (NYSE:GG) -- three beaten-up gold stocks -- as bargains or not. One key factor you need to keep in mind, however, is how they've changed along the way.
Up or down?
So far this year Barrick Gold, Newmont Mining, and Goldcorp are up around 175%, 130%, and 55%, respectively. Based on that time span, it would be hard to call these beaten-up stocks. But that's not the whole picture.
The commodities market was in high gear up to about 2011, when a deep downturn began. If you go back to that point, Barrick, Newmont, and Goldcorp are down about 60%, 30%, and 60%, respectively: now that counts as beaten-up. But if you juxtapose these two data sets, it makes sense to ask if they are still bargains. A lot depends on how much they've changed.
For example, Barrick Gold has been working hard to cut costs, and it isn't done yet. In 2014 its all-in sustaining costs -- what it cost the company to pull an ounce of gold from the ground -- were $864 an ounce. In 2015 that number fell to $831, and management believes it can drive that down to as low as $725 an ounce by the end of 2018. So this year's gold rally is clearly a key part of what's driven up the price of gold stocks like Barrick, but this particular miner hasn't been waiting around for volatile commodity prices to save the day. It's actively working to improve its operations, and it has more room to go.
Better than most
Another reason to like Barrick is the quality of its assets. The company reports that its average reserve grade is 1.3 grams of gold per tonne of earth. That's above the average for large gold miners, which is closer to 0.85 g/t. Newmont and Goldcorp are also above that average, with reserve grades of 1.06 and 0.95, respectively. So there's a lot to like about Barrick, but there are things to like about fellow miners Newmont and Goldcorp, too.
And it's not like Newmont or Goldcorp have been sitting idle, either: These two miners have been improving their operations just like Barrick. For example, Newmont's all-in sustaining costs were over $1,175 an ounce in 2012. Last year that number was down to $898 an ounce, and through the first six months of 2016 it's about $850 an ounce. That's not quite as good as Barrick's number, but it's still toward the low end of the cost curve.