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3 Reasons This Top Gold Stock Slumped 16.5% in February

By Neha Chamaria - Mar 8, 2021 at 9:49AM

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Barrick Gold had a lot going against it last month, but investors might have found an opportunity amid the chaos.

What happened

After holding up pretty firm in January, shares of Barrick Gold (GOLD 0.44%) succumbed to selling pressure and slumped 16.5% in the month of February, according to data from S&P Global Market Intelligence. As if a declining gold price wasn't enough, Barrick's unsuccessful attempt to acquire a mining behemoth even as a legendary investor dumped the gold stock hit investor sentiment hard.

On a positive note, Barrick shares are up nearly 6.3% so far in March, suggesting investors might have found something compelling within the company to consider it worth their money.

So what

Interest in Barrick Gold shares shot up last year when the miner expressed interest in copper giant Freeport-McMoRan (FCX 0.31%). The deal would've likely won Barrick shareholders' approval, given that Freeport's flagship Grasberg mine is also the world's largest gold and second-largest copper mine.

In mid-February, though, CEO Mark Bristow ruled out a potential deal with Freeport after the latter's management expressed disinterest in selling the company. And a buyout wasn't as lucrative anymore for Barrick, as copper prices -- and with them Freeport's share price -- had shot up in the meantime. For perspective, Freeport shares have more than doubled in just the past six months.

Gold nuggets with a falling price chart in the background.

Image source: Getty Images.

Barrick shares were already under pressure when Bristow made this revelation. Just days ago, Warren Buffett's Berkshire Hathaway's (BRK.A -0.16%) (BRK.B -0.34%) latest regulatory filing revealed that it had sold its entire stake in Barrick during the fourth quarter. Berkshire's purchase of 20.9 million shares in Barrick Gold in the second quarter of 2020 had sent investors into a tizzy. Buffett's exit, unsurprisingly, triggered heavy selling activity in Barrick shares last month.

Buffett pulled the trigger on Barrick as gold lost its shine. Gold's price was hovering near all-time highs of around $2,065 per ounce when Berkshire bought Barrick shares but started to decline steadily in January after positive developments around COVID-19 vaccination and Joe Biden's election as the president spurred hopes of a big fiscal stimulus and economic recovery. Gold's fall continued well into February, giving the market yet another reason to sell Barrick shares and park money elsewhere.

Now what

I suspect the biggest reason Barrick shares are bouncing back in March is the long-term opportunity investors see in the world's second-largest gold stock. Amid all the negativity in February, Barrick Gold delivered solid numbers for its fourth quarter and full year, generating record annual free cash flow worth $3.4 billion. With its war chest also swelling, the miner ended 2020 with zero net debt, which is a remarkable feat for a mining company.

Barrick also proposed distributing its capital gains from asset sales as dividends worth $0.42 per share in three tranches this year. If approved, Barrick shareholders would end up pocketing hefty dividend paychecks in 2021, given that the company is already paying a dividend of $0.09 per quarter and yielding 1.8%. That's a darn good dividend to earn from a gold stock.

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Stocks Mentioned

Barrick Gold Corporation Stock Quote
Barrick Gold Corporation
$20.52 (0.44%) $0.09
Berkshire Hathaway Inc. Stock Quote
Berkshire Hathaway Inc.
$464,250.00 (-0.16%) $-761.00
Berkshire Hathaway Inc. Stock Quote
Berkshire Hathaway Inc.
$309.29 (-0.34%) $-1.07
Freeport-McMoRan Inc. Stock Quote
Freeport-McMoRan Inc.
$35.15 (0.31%) $0.11

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

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