Market check
The price of gold has recovered some, climbing some 14% since June lows fueled by the unrest in Egypt, which is prompting a flight to safety, according to Dennis Gartman of The Gartman Letter recently cited on CNBC . When gold prices strengthen, I believe the thing to look for is whether or not these companies have streamlined operations, become more efficient and improve their credit profiles, which have been damaged alongside the falling price for gold. Nonetheless, the future is uncertain and as pointed out in the NPR report, weaker demand from India or China could be a game changer along with slow production at some of the most productive mines — including the Cresson.
Cost cutting
Cost cutting is also the name of the game at Barrick Gold Corporation (USA) (NYSE:ABX). The company just sold its Barrick Energy business, and is in the process of divesting some of its Australian assets. Barrick Gold Corporation (USA) (NYSE:ABX) lowered its 2013 budget and costs by $2 billion, which only served to offset the equally dramatic fall in the price of gold and copper. Sentiment on copper has been negative for months, but stronger economic conditions in China, where much of the demand for the metal stems, could reverse Barrick Gold Corporation (USA) (NYSE:ABX)’s fortunes .
It just refinanced $3 billion worth of debt, and still has $1.8 billion in debt maturing through 2015. The company is focused on those mines that are generating free cash flow and has no intentions of starting new mines. In fact, Barrick Gold Corporation (USA) (NYSE:ABX) has cut or postponed $4 billion in capex over the next four years. After generating $896 million in operating cash flow in the second quarter and with $14.4 billion in debt, the company hasn’t abandoned its dividend payment altogether. But it did recently lower the quarterly distribution to $0.05.
Conclusion
Companies that operate in the commodities sector don’t have control over factors such as the price for the raw material or precious metal that they produce. In the case of AngloGold Ashanti Limited (ADR) (NYSE:AU), the company is responding to the market conditions and limiting investments to high quality and efficient mines. Newmont Mining Corp (NYSE:NEM) is focused on cost cutting but it needs to return to profitability before I would consider it as an investment; and Barrick Gold Corporation (USA) (NYSE:ABX) is mired in too much debt at the moment.
The article Without Low-Hanging Fruit, Gold Miners Focus on Quality originally appeared on Fool.com and is written by Gerelyn Terzo.
Gerelyn Terzo has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned.
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