Some of our readers have suggested that we have an aversion to larger gold miners such as Barrick Gold Corporation. Is this aversion steeped in some psychological need to support the under dog or is all about performance?
We believe that it is all about performance, which can be described as the results of an investment's activity over time. This web site is about investment, which can be described as the use of money for the purpose of making more money. How do we determine which is the best vehicle to use, by comparative analysis which is the evaluation of similarities and differences. There are many more interpretations of these functions however for this exercise we are trying to keep it short and to the point.
Now lets take a look at Barrick, one of the biggest mining companies on the board with a market capitalisation of $28.8 billion, a P/E ratio of 29 with 865 million shares outstanding. Barrick describe themselves as follows:
“Barrick is the world’s largest gold producer, with a portfolio of 27 operating mines, many advanced exploration and development projects located across five continents, and large land positions on the most prolific and prospective mineral trends. The Company also has the largest reserves in the industry, with 123 million ounces of proven and probable gold reserves, 6 billion pounds of copper reserves and 964 million ounces of contained silver within gold reserves as at December 31, 2006”.
So we are looking at the heaviest of the heavy weights in the gold mining sector.
Now lets take a look at the chart for Barrick:
Over the last three years Barrick has made steady progress from around $20.00 to around $32.00 yesterday, for a gain of 60%, a nice profit, no doubt about it.
Now, how does it compare with investment vehicles of a similar type?
The chart below compares Gold itself, Barrick, Agnico-Eagle and Yamana.
The first observation is that Barrick has not kept up with the price of gold so our money would have provided a better return had we invested in the metal. The second observation is that both Agnico-Eagle and Yamana have dramatically outperformed Barrick. Likewise many other gold miners have also outperformed Barrick.
Barrick may appeal to a fund manager who has lots of cash to place and not much in the way of imagination but as individual investors we should be able to generate far better returns on our funds.
If you think that we have the wrong end of the stick then please write in and state the case for the Barrick Gold Corporation, as this will add balance to the investment debate.
Barrick Gold Corporation trades as ABX on the NYSE and the Toronto Stock Exchange.