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Goldcorp Inc. (USA) (GG), Newmont Mining Corp (NEM): Is Barrick Gold Corporation (USA) (ABX) Destined for Greatness?

Investors love stocks that consistently beat the Street without getting ahead of their fundamentals and risking a meltdown. The best stocks offer sustainable market-beating gains, with robust and improving financial metrics that support strong price growth. Does Barrick Gold Corporation (USA) (NYSE:ABX) fit the bill? Let’s take a look at what its recent results tell us about its potential for future gains.

Barrick Gold Corporation (USA) (NYSE:ABX)

What we’re looking for
The graphs you’re about to see tell Barrick Gold Corporation (USA) (NYSE:ABX)’s story, and we’ll be grading the quality of that story in several ways:

Growth: are profits, margins, and free cash flow all increasing?

Valuation: is share price growing in line with earnings per share?

Opportunities: is return on equity increasing while debt to equity declines?

Dividends: are dividends consistently growing in a sustainable way?

What the numbers tell you
Now, let’s take a look at Barrick Gold Corporation (USA) (NYSE:ABX)’s key statistics:

ABX Total Return Price Chart

ABX Total Return Price data by YCharts

Passing Criteria 3-Year* Change Grade
Revenue growth > 30% 48.6% Pass
Improving profit margin (97.5%) Fail
Free cash flow growth > Net income growth 72.5% vs. (193.5%) Pass
Improving EPS (153.5%) Fail
Stock growth (+ 15%) < EPS growth (55.7%) vs. (153.5%) Fail

Source: YCharts. * Period begins at end of Q2 2010.

ABX Return on Equity Chart

ABX Return on Equity data by YCharts

Passing Criteria 3-Year* Change Grade
Improving return on equity (115%) Fail
Declining debt to equity 174.4% Fail
Dividend growth > 25% (58.3%) Fail
Free cash flow payout ratio < 50% Negative FCF Fail

Source: YCharts. * Period begins at end of Q2 2010.

How we got here and where we’re going
Barrick Gold Corporation (USA) (NYSE:ABX) earned only two out of nine possible passing grades today, and some of these failures look really, really ugly — the gold miner’s trailing 12-month net losses have ballooned to over $10 billion. Despite promising revenue growth over the past three years, Barrick’s operational costs have crushed all hopes of profitability, at least in the near term. As a result, Barrick has raised a significant amount of debt to make short and long-term investments in its business, costing it another failing grade on this test. Is there any hope left for Barrick today?

Over the past four years, the cost of producing one ounce of gold for Barrick Gold Corporation (USA) (NYSE:ABX), Goldcorp Inc. (USA) (NYSE:GG) and Newmont Mining Corp (NYSE:NEM) has been increasing at an annualized rate of 19.3%, 5.7% and 21.3% respectively. My Foolish colleague Rupert Hargreaves points out that the price of gold has also declined modestly, which has saddled gold miners with writedowns and steep losses. As a result, Barrick had to cut its capital expenditures by more than $4 billion over a four year term. In addition, Barrick has ambitious plans to divest high-cost production mines to prop up its cash flow. The company has also cut its headcount by 30%.

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