Barrick Gold Corporation (USA) (ABX), SPDR Gold Trust (ETF) (GLD): Should You Follow Billionaire John Paulson and Dump This Gold Miner?

But there are budding signs of hope for the miners. Over the past year, the equity index has trailed the price of gold by 20% and is trading at the lowest valuation relative to the metal in decades. In addition, several other big miners are reigning in spending and cutting costs. Last quarter, Kinross Gold Corporation (USA) (NYSE:KGC) announced that it cut capital and exploration spending, closed an office in Vancouver, and reduced the number of employees at its Toronto office by 7%. Yamana Gold has also cut its production targets in an effort to corral costs. It looks like the miners are getting their act together.

Real concerns
Of course, Barrick faces real problems that should be legitimate concerns to investors. The company is burdened by high debt, and capital expenditures will remain elevated for years to come while its Pascula-Luma mine is built. If gold takes a dive below $1,200 per ounce, questions about Barrick’s liquidity will resurface.

But as the world’s largest gold miner, Barrick is well positioned to handle this possibility. Of the company’s properties, 57% have production costs below $700 per ounce and another 18% are below $1,000 per ounce. With another (granted painful) reorganization, these properties would provide sufficient cash flow to fund operations.

Foolish bottom line
Now, I have to be careful when I take a position against legendary investors like John Paulson. But this feels like a normal capitulation, and that happens to the best of us. Watching the last of the bulls get squeezed out of their positions is typically a sign of the bottom.

The article Should You Follow Billionaire John Paulson and Dump This Gold Miner? originally appeared on Fool.com and is written by Robert Baillieul.

Robert Baillieul has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. 

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