Why Barrick Gold’s Stock Lags Behind Rising Gold Prices

Barrick Gold stock (NYSE: GOLD) has dropped approximately 21% over the past two months and is currently valued at about $17 per share. In contrast, the S&P 500 index has risen by 3%, while gold prices have dipped by about 2%. This downturn occurs despite gold prices experiencing a significant surge this year, increasing from around $2,050 per ounce in early January to close to $2,650 now—marking one of the highest annual increases in the last decade. The rise in gold prices can be attributed to various factors, including moderating U.S. inflation and rising geopolitical tensions that steer investors toward gold as a safe haven. The Consumer Price Index for November registered a 2.7% increase, slightly up from October’s 2.6%, potentially setting the stage for a Federal Reserve rate cut soon. So why hasn’t Barrick, one of the largest gold miners globally, seen a boost in stock price alongside soaring gold prices?

Operational Challenges Restrain Barrick’s Growth

Barrick has encountered substantial operational hurdles, largely due to production delays earlier this year. Setbacks at the Pueblo Viejo mine, including slower ramp-up times and maintenance issues, alongside lower ore grades from other locations, have impacted output. However, recent reports indicate that Pueblo Viejo’s quarterly production has improved while unit costs have declined as the plant continues its ramp-up process, which is expected to stabilize in Q3 2024. In that same quarter, Barrick sold 967,000 ounces of gold, which represents a 6% decline compared to 1,027,000 ounces sold in the same quarter last year. While production is set to increase later in the year compared to 2023, the earlier ramp-up issues have resulted in lower-than-expected production levels. Despite progress at Turquoise Ridge in stabilizing underground production, output there is expected to remain below projections. Thus, while gold prices and margins rise, Barrick’s operational setbacks could continue to hinder production into 2025.

Rising Costs Challenge Profitability

The cost factors for Barrick present a mixed picture. During Q3, the company’s all-in sustaining costs increased by 20% year-over-year, hitting $1,507 per ounce. This increase is likely a result of lower production—a factor that diminishes economies of scale—and inflation-related pressures on costs, like labor. Furthermore, with higher gold prices, mining companies may become less strict about managing costs, which could exacerbate Barrick’s cost situation. This trend may lead investors to favor companies that demonstrate greater cost efficiency.

Historical Performance: The Ups and Downs

The decline in GOLD stock over the past three years has not been uniform. Its annual returns were -13% in 2021, -6% in 2022, and a modest 8% in 2023, indicating less volatility compared to the S&P 500. On the other hand, the Trefis High Quality (HQ) Portfolio, comprising a selection of 30 stocks, has consistently outperformed the S&P 500 each year during this period. This raises a critical question: can Barrick’s stock mirror its previous underperformance over the next 12 months, or is a recovery on the horizon amidst ongoing market uncertainties?

Optimism for Future Growth

Looking forward, Barrick’s performance is anticipated to improve in Q4 2024 and into the next year, bolstered by the ongoing ramp-up at the Pueblo Viejo facility, increased throughput at Nevada Gold Mines, and enhanced ore grades at Kibali. The company has reported a 44% yearly growth in net earnings per share over the first nine months of 2024, propelled by rising gold prices. Additionally, Barrick’s strategy to expand its copper business could further enhance stock value in light of copper’s increasing relevance in industries such as electric vehicles and renewable energy. Our valuation places a price estimate of $21 on Barrick Gold, suggesting a potential upside of about 25% from its current market price. For further analysis on Barrick Gold’s valuation or its revenue streams, please refer to our detailed reports.

[1] Returns as of 12/16/2024
[2] Cumulative total returns since the end of 2016

Invest with Trefis Market Beating Portfolios
See all Trefis Price Estimates

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.