Is Barrick a Better Gold Mining Bet Than Newmont?

Since the beginning of the year, gold has added nearly 13%, with most of the gain coming since the beginning of February. Gold mining stocks are performing even better.

Both Barrick Gold Corp. (NYSE: ABX) and Newmont Mining Corp. (NYSE: NEM) reported fourth-quarter results on Wednesday, but investor reaction has been significantly different. Barrick’s shares traded up about 5% Thursday, while Newmont’s have struggled just to reach the break-even line, after posting a morning low of $23.12, down nearly 7% from Wednesday’s closing price.

For the month of February, Barrick’s stock is up more than 26% and Newmont’s is up more than 24%. Since the beginning of the year, Barrick shares have soared nearly 70% and Newmont’s have jumped nearly 40%.

In its announcement Wednesday, Barrick said that it cut its debt by $3.1 billion in 2015 and that it wants to cut remaining debt by an additional $2 billion this year. The company is also targeting an all-in sustaining cost of production of $700 an ounce for gold by 2019. In 2014 the company’s all-in cost was $925, and that dropped to $733 in 2015. Output for 2016 is forecast at 5.o million to 5.5 million ounces, with all-in costs in the range of $775 to $825 per ounce. Barrick’s long-term debt totaled about $9.8 billion at year-end.

Newmont expects 2016 production of 4.8 million to 5.3 million ounces of gold at an all-in sustaining cost of $900 to $960 an ounce. The company is targeting all-in costs of $850 to $950 per ounce in 2017. The company also said it paid $200 million last year on its existing term loan and $250 million on project debt. Newmont’s reported long-term debt totaled about $6.1 billion.
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Barrick managed to end a four-year drought last year by posting free cash flow of $471 million, of which $387 million was posted in the fourth quarter. Newmont’s free cash flow in 2015 was $756 million, but in the fourth-quarter free cash flow was a negative $185 million.

Barrick’s lower cost estimates and emphasis on free cash flow may have been enough to plant investors firmly in its corner. If free cash flow improves, so could dividends and maybe even buybacks. That’s a story investors can get behind.

Barrick traded up about 5.7% in the noon hour Thursday, at $12.57 in a 52-week range of $5.91 to $13.70. The consensus price target on the stock is $10.42.

Newmont traded up about 0.3% to $24.92, in a 52-week range of $15.39 to $27.90. Its consensus price target is $23.51.

Even though both miners are trading above their consensus price targets, Jefferies already has raised its target on Barrick from $9 to $11 with a Hold rating, and TD Securities has a target of $14.50 with a Buy rating. BMO Capital Markets last week lifted its price target to $13.50 with an Outperform rating.

Jefferies also lifted its price target on Newmont from $24 to $28 Thursday, and CIBC raised its target to $28.50. BMO Capital Markets raised its target to $27.50 last week and has a rating of Outperform on the stock.