Better Buy: Barrick Gold (TSX:ABX) or Kinross Gold (TSX:K)?

With gold prices expected to remain at elevated levels, Kinross Gold could be a better buy than Barrick Gold. Here’s why.

| More on:

Amid the uncertainty in the equity markets and lower returns on bonds, investors have found refuge in the safe-haven asset, gold, leading to a surge in its prices. Year-to-date, gold prices have increased by over 27%. The increase in gold prices has benefited gold mining companies, such as Barrick Gold (TSX:ABX)(NYSE:GOLD) and Kinross Gold (TSX:K)(NYSE:KGC), which have returned over 50% this year.

Meanwhile, industry experts are projecting gold prices to rise further. Although the broader equity markets have made a significant recovery from its March lows, the economic indicators are still weak, which could act as a headwind for the financial markets going forward.

So, I believe the stock markets could be highly volatile over the rest of this year. Besides the volatility, the announcement of stimulus packages from various governments and central banks could also drive gold prices higher.

As reported by CNBC on August 10, the CEO of U.S. Global Investors, Frank Holmes, expects gold prices to reach US$4,000 per ounce over the next three years. With the expectation of gold price to remain elevated, which among Barrick Gold and Kinross Gold is a better buy right now?

The case for Barrick Gold

Currently, Barrick Gold trades over 58% higher for this year. Besides its impressive second-quarter performance and high gold prices, the announcement of Warren Buffett’s Berkshire Hathaway acquiring a stake in the company drove its stock price. In its SEC filing on August 14, Berkshire Hathaway reported that it had bought 21 million shares of Barrick Gold for approximately US$564 million in the second quarter.

Meanwhile, Barrick Gold’s revenue grew 48% on a year-over-year basis to US$3.06 billion in the second quarter, driven by higher realized gold and copper prices. However, the production of gold dipped by 15% amid the planned shutdown of its Pueblo Viejo production and COVID-19 related shutdown in Argentina.

Its adjusted EPS came in at US$0.23, which was an increase of over 155% from its previous year’s quarter. Along with its top-line growth, the expansion in its adjusted EBITDA margin drove the company’s earnings.

Further, the company’s balance sheet looked stable, with its cash and cash equivalents standing at US$3.74 billion. During the quarter, the company lowered its net debt by 25% to US$1.4 billion, with no significant maturities until 2033.

For 2020, the management has projected its gold production to be in the range of 4.6 million ounces — five million ounces compared to 4.5 million ounces in 2019. Also, the management is hopeful that its copper production would rise this year. So, given the favorable prices and the expectation of an increase in its production levels, the company’s outlook looks strong.

Kinross Gold

On the back of strong second-quarter performance and high gold prices, Kinross Gold had hit its 52-week high of $13.50 on August 5. However, the margin decline in gold prices has dragged its stock down to $11.67. Despite the recent pullback, it still trades 90% higher for this year.

In its second quarter, the company’s revenue grew by 20%, while its adjusted EPS rose 150%. Its attributable margins improved by 53% to US$987 per ounce, driven by a higher average realized gold price and increased contribution from its low-cost mines. Further, the company’s liquidity stood at US$2.3 billion, with no repayments until September 2021.

Further, Kinross Gold’s long-term growth prospects look robust. Last month, it completed a pre-feasibility study of the Lobo-Marte project in Chile, which increased its gold reserve estimates by 6.4 million ounces. Meanwhile, the company is working with the government of Mauritania to get a 30-year exploitation license for its Tasiast mine.

Bottom line

Although both companies have impressive growth potential, I would prefer Kinross Gold, given its attractive valuation and improvement in its operating efficiency. Currently, Kinross Gold trades at a forward price-to-earnings multiple of 11, while Barrick Gold trades at a premium with a forward price-to-earnings multiple of 23.8.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Rajiv Nanjapla has no position in any of the stocks mentioned. 

More on Metals and Mining Stocks

Concept of multiple streams of income
Stocks for Beginners

Lock Up This 9.2% Dividend Yield From a Top Royalty Stock

Royalty stocks have a strong advantage when it comes to creating passive income for investors. But this one has the…

Read more »

Safety helmets and gloves hang from a rack on a mining site.
Metals and Mining Stocks

Is First Quantum Minerals Stock a Good Buy Right Now?

First Quantum is a TSX stock that trades 61% below all-time highs. However, the mining stock still trades at a…

Read more »

nugget gold
Metals and Mining Stocks

The Best Gold Stock to Invest $1,000 in Right Now

Here are two of the best Canadian gold stocks that can yield some eye-popping returns in the long run.

Read more »

nugget gold
Stocks for Beginners

The Ultimate Mining Stock to Buy With $1,000 Right Now

This mining stock just saw a drop, but don't let that keep you from diving in. This miner is due…

Read more »

A plant grows from coins.
Metals and Mining Stocks

Canadian Mining Stocks: Buy, Sell, or Hold?

Explore 2025’s top Canadian mining stocks – gold, uranium, and base metals offer big potential in a dynamic, commodity-driven market.

Read more »

farmer holds box of leafy greens
Metals and Mining Stocks

3 Reasons to Buy Nutrien Stock Like There’s No Tomorrow

Nutrien stock has lost 34% of its value just this year alone and looks incredibly cheap today. Yet, secular trends…

Read more »

Canada national flag waving in wind on clear day
Tech Stocks

Trump Trade: Canadian Stocks to Watch

With Trump returning to the presidency, there are some sectors that could boom in Canada, and others to watch. But…

Read more »

Super sized rock trucks take a load of platinum rich rock into the crusher.
Metals and Mining Stocks

Invest $7,000 in This Dividend Stock for $672 in Passive Income

High yield can be an essential requirement when you need to start even a modestly sized passive income with a…

Read more »