By Matthew DiLallo
Billionaires had been betting big that the price of gold would spike and take gold miner Barrick Gold's (NYSE:ABX) stock price up with it. They were right, with its stock price doubling from mid-2015 through the end of the second-quarter of this year. That massive run led the funds managed by billionaires George Soros, Kerr Neilson, James Simons, and Louis Bacon to take some money off the table by selling an estimated $400 million of Barrick Gold's stock during the second quarter.
While billionaires are not always perfect investors, they are worth watching given their investing prowess. So, while it would be crazy to follow their lead and blindly dump Barrick Gold's stock too, it is at least worth digging into the data to see if these moves make sense.
An epic run
After steadily sinking for most of the past five years, the price of gold is surging in 2016 and was up 25% over the first six months of the year, enjoying its best first-half rally in decades. That run on gold pushed Barrick Gold's stock up by an astounding 169% through the first half of the year, which was its best performance ever over a six month period.
The gold price rally provided a significant boost to the profitability of miners. In Barrick Gold's case, it benefited not only from the rising gold price, but from the fact that it cut its cost of sales by 14%, which enabled the company to report its highest net income since 2013. Further, the company was able to generate $274 million in free cash flow for the quarter, which marked its fifth straight quarter with positive free cash flow. That allowed it to pay down more debt, with it cutting its total debt by $968 million since the start of the year, putting it on track to hit its full-year targets. That improving financial picture is what fueled its stunning rally.
We find similar stories at rival gold miners. Newmont Mining (NYSE:NEM), for example, grew its adjusted net income by 76.3% over last year's second quarter to $231 million while its free cash flow surged 308.4% to $486 million. While the higher gold price boosted Newmont Mining's results, it also benefited from a 3.6% decrease in its all-in sustaining costs per ounce. Newmont Mining expects those costs to improve even further later this year, enabling it to continue to cash in on higher gold prices. That is why its stock more than doubled this year, too.