Market Mad House

In individuals, insanity is rare; but in groups, parties, nations and epochs, it is the rule. Friedrich Nietzsche

The Death Spiral

Is Barrick Gold Doomed?

India’s prime minister; Narenda Modi, might have doomed mining companies like Barrick Gold (NYSE: ABX). In a surprise move on November 8, Modi made 84% of the cash in India worthless by withdrawing the 500 and 1,000 rupee bills from circulation.

That is very bad news for struggling gold miners; because one of the main uses for those bills in India is to purchase gold, mostly in the form of jewelry. Indians buy around 1,000 tons of gold with cash a year; in an effort to protect their money from the government, according to The Economic Times.

A major reason why Modi killed his nation’s two largest banknotes was to stop the flow of cash out of the economy and into gold. That might be sound economic policy; but is potential disaster for Barrick and his competitors because India is the world’s largest market for gold.

If the Prime Minister can pull the plug on India’s gold driven “black economy” he might strike a fatal blow to gold miners. That would occur because without India, gold prices are likely to go into free fall.



Barrick Gold’s Revenue Collapse

That might be the end of Barrick Gold; which is already in very sorry shape. The miner’s stock was trading at $15.46 a share on November 21, 2016, and its revenues were in collapse.

Barrick’s revenues have declined every quarter for almost four years, since September 2012 to be exact. Back then Barrick reported TTM revenues of $14.05 billion, which rose to $14.44 billion in December 2012.

By September 2016; less than four years later, Barrick reported revenues of $8.477 billion. My calculations indicate that Barrick’s revenues have fallen by nearly $6 billion ($5.963 billion to be exact) in less than four years.


This indicates that there is little chance of growth at Barrick particularly with India’s gold market potentially shuofft; and a gold price of $1,227.70 an ounce on November 16, 2016. To make matters worse, a booming stock market is pulling money out of precious metals and into equities.

Is Barrick Gold Making Money?

Okay, so Barrick Gold’s chances of growth are zilch, but is it making money? Is this company potentially a value investment?

The answer to the first question is a definite no, Barrick Gold reported a net income of -$2.392 billion, on September 30, 2016. That was 15th straight quarter that Barrick gold reported a loss, its net income has been negative since December 2012, ycharts data indicates.

Despite that Barrick was able to retain a lot of cash at the end of third quarter 2016 including: $2.648 billion in cash and short-term investments, $2.627 billion in cash from operations and a free cash flow of $674 million. The company still has some float, largely because it can still raise a lot of cash by selling the precious metals it mines.

Even with substantially lower prices gold can still be quickly turned into a lot of cash at $1,227 an ounce. That gave Barrick a profit margin of 7.62% at the end of third quarter 2016. Even with a negative income, Barrick can make enough money to survive, although it might not be able to do much more.


Is Barrick Gold a Good Investment?

Despite that Barrick Gold is not a good investment because of the low share price and lousy return on equity. Its investors were punished with a return on equity of -30.68% and an earnings per share (EPS) ratio of -2.05 at the end of third quarter.

This occurred because of the terrible share price which offsets any income they would get from the dividend yield of .52% from November 21. Barrick investors are scheduled to collect a dividend of 2¢ a share on November 28, 2016.

That is a very pour exchange for the nearly one third of share value they have lost in recent years. To make matters worse even the dividend is down, back in May 2015, Barrick was paying a dividend of 5¢. As recently as February 2013, the stock paid a 20¢.

This means there’s no real way investors can make money off this stock right now. Stay away from Barrick because the company was doing terribly before Modi declared war on cash. If India’s prime minister continues with his present economic policies, he will destroy Barrick and many other gold miners.

Now is the time to stay away from the gold-mining sector. It is not going to recover for a long time even if India’s policies change radically. Sell any gold stocks you own, the sector is in total meltdown.