Can Barrick Gold Corporation (USA) (ABX) Lead Gold Stocks Higher?

Page 1 of 2

When Barrick Gold Corporation (USA) (NYSE:ABX) announced earnings last week, while the numbers were good, it was the underlying message that should give investors hope. CEO Jamie Sokalsky took ownership of the challenges facing his company, and the industry in general, repeating his message of a quarter ago that the company is ratcheting down its controls to create a more streamlined operation that focuses on maximizing shareholder value.

“Investors are rightfully demanding fundamental change in the gold industry, and Barrick is driving this new paradigm,” Sokalsky said. While the stock rose initially on Thursday, Friday’s price action suggests that the market remains unconvinced; the $4.2 billion after-tax impairment charge was not likely to escape punishment. The company and the industry are getting the message that spending needs to be kept in check, and ultimately, Barrick is positioned to lead gold stock much higher.

Barrick Gold Corporation (USA) (NYSE:ABX)The earnings results
Excluding the impairment, the company earned $1.11 per share, topping analyst estimates of $1.06. With the charge that resulted from a writedown in the company’s copper business, EPS came in at a loss of $3.06. Revenue rose to $4.19 billion for the quarter, representing an 11% increase. Year-ago quarterly earnings were $0.96 per share. The company expects to produce 7 million to 7.4 million ounces of gold in 2013, a decrease from the 7.42 million ounces produced in 2012.

While the numbers are solid, they aren’t the type of results that lead investors to get excited. Sokalsky noted in the earnings release the need for change: “Rising costs, poor capital allocation, and the pursuit of production growth at any cost in the industry have led to declining equity valuations across the sector. The message is clear: The industry must chart a new path forward.” These types of issues have led to some of the problems in the industry over the past few months and explain why Barrick has underperformed gold, as represented by theĀ SPDR Gold Trust (ETF) (NYSEMKT:GLD), by 25% over the past year.

This is not a new message coming from Barrick, but the fact that its CEO is staying the course is encouraging: “Barrick highlighted the need for change last year, and we are increasingly taking strong action and refocusing our business based on the principle that returns will drive production, production will not drive returns.” It is this new spirit of discipline, replacing the mantra of growth at all costs, that has the potential to allow the gold industry to capitalize on both its inherent strength and the global macroeconomic factors that support a move higher.

A new era of accounting
One of the critical flaws in the gold industry has been how companies account for their costs. Under the current standard, certain factors necessary to sustain production are not included in the cost number, thereby making operating results skewed in favor of the company. The company has been actively working with the World Gold Council to define a new, more accurate definition of cost. The new definition of “all-in sustaining cash costs” is expected to be complete by the middle of 2013. Barrick has made clear its intention to abide by this standard as one of many efforts to give investors a clearer picture of the situation within the company.

Page 1 of 2
Comments
Insider Monkey Small Cap Strategy
Insider Monkey Small Cap Strategy

Insider Monkey beat the market by 52 percentage points in 24 months. Our beta is only 1.2 (don't click this link if beating the market isn't important to you).

Lists

Richest Doctors in the World

The Best Movie Sountracks Ever

The Highest Grossing Musicals on Broadway

The Most Successful Reality TV Stars

Cheapest Cities to Visit in the US

Most Expensive Summer Camps

Most Expensive Animals in the World

Most Expensive Specialty Crops in the World

Movies That Took Ages to Make

The Longest Hollywood Films Ever Made

Most Expensive Concert Stages

The Richest Bands of all Time

10 Most Corrupt Countries 2013 List

10 Countries with the Highest Quality of Life Index

Most Expensive Mattresses in the World

5 Smallest Countries by Land Area

The Ultimate Heartbreak Songs

Richest Teenagers in the World

10 Most Haunted Places in America

10 Best Places to Retire in Florida East Coast

Top 10 Places to See Before You Die

Top 8 Countries in the World Where Justice Prevails

10 Richest States in America

15 Wealthiest Countries in the World

Richest Singers in the World

Most Expensive Tasting Menu in New York City

Most Expensive Baby Items in the World

Most Expensive Hotel Suites in Vegas

Most Expensive Brunch in New York City

Most Expensive Beef Cuts in the World

25 Best Colleges to Get a Job

Top 10 US Supermarkets

The 25 Most Dangerous Cities in the World to Visit

Most Expensive Xbox Games

Top 11 Cities Where Billionaires Live

Top 10 Most Charitable Companies in America

Most Expensive Seafood in the World

The 10 Wildest Conspiracy Theories

The 10 Best Job Markets in the US

Top 10 Accounting Scandals of All Time

The 25 Biggest Cities in the World

Top 10 Best Paying Virtual Jobs

Most Expensive Leather Shoes in the World

Top 6 Things to Buy in March

The 10 Most Stressful Jobs in America – 2014 List

Top 10 Jobs for Introverted People

Top 10 Honeymoon Destinations in the World

Top 10 Highest Paying Jobs in the World

Most Expensive Day-Care in New York City

The 10 Cheapest Places to Retire Abroad

Subscribe

Enter your email:

Delivered by FeedBurner

X

Thanks! An email with instructions is sent to !

Your email already exists in our database. Click here to go to your subscriptions

Insider Monkey returned 47.6% in its first year! Wondering How?

Download a complete edition of our newsletter for free!