Gold stocks tend to perform well following an interest rate hike, so it’s time to invest in the gold sector.
Barrick Gold Corp. (TSX:ABX)(NYSE:ABX) is the world’s largest gold mining company, and Goldcorp Inc. (TSX:G)(NYSE:GG) is the fourth-largest.
The two companies released their 2017 second-quarter results on July 26. You may wonder which company is a better buy. Let’s find out by comparing the two gold giants.
Barrick Gold Corp.
The biggest gold producer reported a 2017 second-quarter profit of $1.08 billion, or $0.93 per share.
Earnings, adjusted for non-recurring gains, were $261 million, or $0.22 per share. This is up 65.2% from $158 million, or $0.14 per share, in last year’s second quarter. Analysts had expected Barrick Gold to earn $0.18 per share. Year over year, Barrick Gold’s EPS has grown by 675%.
The Toronto-based company posted revenue of $2.16 billion for the quarter. This is up 7.5% from $2.01 billion last year.
Gold production in the second quarter was 1.43 million ounces — up 6.9% year over year. All-in sustaining costs, the industry benchmark, were $710 per ounce — down 9.2% and below estimates of $720-770. Those costs are among the lowest in the industry.
Barrick Gold was able to reduce its total debt by $309 million to $7.44 million. The company expects a full-year production of 5.3-5.6 million ounces and all-in sustaining costs of $720-770 per ounce.
Barrick Gold currently has a return on equity of 27.83%, a return on invested capital of 16.33%, and a net profit margin of 31.74%.
A few days ago, we learned that Tanzania’s government and Barrick Gold have started talks to resolve a tax dispute involving Acacia Mining. The government accused Acacia, in which Barrick holds a majority stake, of evading taxes over the years by under-declaring exports. Acacia denies the accusations and has been hit by a $190 billion tax bill.
Barrick Gold shares are down nearly 2% since the beginning of the year.
Goldcorp Inc.
Canadian gold producer Goldcorp reported better-than-expected earnings on July 26, helped by lower costs.
The world’s fourth-biggest gold producer by market value reported net earnings of $135 million, or $0.16 per share, for its 2017 second quarter, which ended June 30.
A year ago, the company reported a loss of $78 million, or $0.09. This loss was mostly due to a reduction in production at Penasquito, its biggest mine, following a maintenance shutdown and a slow restart.
Adjusted for one-off items, earnings were $0.12 per share, beating analysts’ estimate of $0.09 per share, on average, according to Thomson Reuters.
The Vancouver-based company produced 635,000 ounces of gold in the second quarter at a cost of $800 an ounce. This represents production that’s 4% larger than the 613,000 ounces of gold it produced at a cost of $1,067 per ounce in the second quarter of 2016.
Goldcorp left its 2017 gold production forecast unchanged at approximately 2.5 million ounces. However, it lowered its forecast for all-in sustaining costs to $825 an ounce from a previous $850, reflecting progress on its cost-reduction program.
Goldcorp currently has a return on equity of 3.48%, a return on invested capital of 3.51%, and a net profit margin of 13.22%.
Goldcorp’s share price is down more than 12% since the beginning of the year and is trading very near its 52-week low.
Which gold producer should you invest in?
By comparing the two gold giants, one is standing out from the other, even if the two have had a better-than-expected second quarter.
With continued profitability and net debt reduction, Barrick Gold is well in advance of Goldcorp. It also benefits from low cash costs and solid free cash flows. I bet that Barrick Gold is going to do better than Goldcorp in the months to come.
