By John McDonald
Gold prices have continued to rise in recent months thanks to international trade tensions, a volatile stock market, and Federal Reserve policies that are a bit bewildering to many analysts.
Two gold mining companies, Newmont Mining and Barrick Gold, have certainly benefited from renewed demand for and interest in the precious metal.
While both are flourishing, some interesting trends have emerged as both companies engage in what some Forbes analysts are referring to as “The Gold War”.
Revenue Leader Positions Switched
Perhaps one of the most interesting developments in recent years is the “switch” in revenue leadership between Barrick and Newmont.
Historically, Barrick has reported much higher revenues than competitor Newmont. Over the course of 2018, however, Newmont has reported higher revenues than Barrick.
That trend has continued in 2019.
In fact, Barrick’s revenue dropped by a staggering $1.8 billion between 2015 and 2018. Both companies mine gold and other precious metals, which may have something to do with the revenue reversal.
Although Barrick was able to retain leadership through 2017, its reserve base of gold was dramatically depleted due to increased demand for the precious metal.
Production fell and volumes of both gold and copper shipped fell, as well. Newmont, on the other hand, was able to gain $1.2 billion during the same period, although it also faced declining copper sales.
Analysts predict the revenue gap will widen by the end of 2019, in large part because they expect Newmont to continue to grow at a faster rate than Barrick.
Newmont’s merger with Goldcorp is likely to eclipse Barrick’s merger with Randgold Resources, despite both falling in the classification of “mega-merger” in the industry.
At present, Forbes analysts predict Newmont’s revenue lead will widen to $0.6 billion in 2019, although both companies will likely continue to experience growth and significant profits.
Production & Shipments Play Key Roles in Growth
Not surprisingly, Newmont’s revenue has been greater than Barrick’s due to higher production capacity and higher shipping volumes.
Over the past three years, Barrick’s production of gold has declined by 1.6 million ounces, while Newmont has increased production capacity by 0.5 million ounces.
A larger reserve base serves to fortify Newmont’s new lead. Analysts expect both companies to conclude 2019 with higher gold production than the year prior, but Barrick is likely to remain in second place.
When it comes to shipping, the trend naturally follows that Newmont is shipping more gold as well as producing more given the global demand for the precious metal.
Barrick, on the other hand, faces quality issues in some of its mines. This has resulted in a diminished capacity to ship at competitive volumes.
It remains to be seen if the Barrick-Randgold deal will drive growth volume for the company high enough to retake the lead, but Newmont’s high-quality mines make a reversal in 2019 unlikely.
Interestingly, Newmont and Barrick have vastly different strategies when it comes to gold price realization, and that places Barrick in the lead in one key category.
Barrick has a higher-grade output in the U.S. and uses several hedging strategies to get the best value for its gold.
Newmont, on the other hand, uses a zero-hedging strategy. This means all of its gold is sold at market price.
Barrick’s margins might end up higher than Newmont’s as a result, although Newmont is generally the favorite to remain a larger entity when it comes to both revenue and production.
What Does This Mean for Investors?
Since both Newmont and Barrick are publicly traded, many investors who already have solid positions in gold and precious metals are investing in these mining companies as well.
Whether you invest in shares of these mining companies or prefer to simply watch their movements and growth for cues on how the precious metals markets are trending, the “Gold War” will truly be won by investors holding this precious metal.