Barrick Gold: Historical Overview Clearly Shows Investment Viability

Mar.21.13 | About: Barrick Gold (ABX)

Barrick Gold (NYSE:ABX) is a company worth watching. Founded in 1983, the company is now the largest gold miner in the world. It is headquartered in Toronto, Canada, but has business units in South America, North America, Australia, and Africa. The company started small, but has been expanding ever since it opened its doors - and the growth and development is not over yet. Barrick Gold has also moved into a new and exciting endeavor by undertaking exploration and mining projects in Papua, New Guinea and many other places around the globe.

These new endeavors include: Canada, the US, Chile, Peru, the Dominican Republic, Australia, Pakistan, and Tanzania, among other. It is clear that Barrick Gold is going places, but to get the full picture it is vital to see where the company came from, who it competes against, and the strengths and weaknesses it has. Whether the company is right for your investment depends on your goals for the future, but the more you know about the company the more opportunity you will have to make a sound decision with your money.

Analysis and Background - Where did Barrick Gold Come From?

To take the full measure of a company, you have to know where it came from and how it got to where it is today. History may not seem fascinating, but how a company arrived at its present state and how strong that state is will provide a lot of insight into what that company can and will do in the future. If that future involves your investment money, you will want to know what that future holds as much as you possibly can. Since Barrick Gold was founded in the 1980s, it is still a relatively new company - but that does not mean there have not been important changes since its creation.

The early years saw a lot of struggles within the company, as it was seeking the right identity. In 1986 it changed its name, and did so again (to the current Barrick Gold moniker) in 1995. That name fit, and there are no plans to change it again. The 90s were full of takeovers and growth. In 1994, there was a friendly takeover of Lac Minerals, making Barrick Gold third-largest in its industry.

Just two short years later, 1996 brought another takeover. This time it was Arequipa Resources. Barrick Gold was not slowing down, and 1999 brought one more takeover, of Sutton Resources Ltd. In 2001, Barrick Gold became the second largest gold producer by purchasing the Homestake Mining Company, but it was not over yet, and the decade would prove to be huge for the company.

For example, 2006 saw Barrick Gold acquire the majority share of Placer Dome, which put it ahead of Newmont Mining Corporation (NYSE:NEM) as the largest producer of gold. Usually one acquisition does not make such a significant difference, but Barrick Gold saw an opportunity for extreme expansion and took it. That can only be the result of careful planning over a long period of time in order to ensure that the finances and skills were available when the opportunity presented itself.

The Strengths of Barrick Gold

It is pretty easy to see that the main strength of Barrick Gold has been its ability to buy up other companies so it can grow stronger. How it is doing that matters, because most companies would love to be able to grow in that fashion. Most cannot afford to do so, because they do not have the money or the clout to do what Barrick Gold has done. Fortunately for Barrick Gold, it does have the clout and the money, and that has allowed it to continue to buy up and take over companies that were small-time or even big-time gold mining operations. Careful planning is a very large part of how the company did this, and one of the main strengths of Barrick Gold.

Another important strength is the management of the company. No company, whether big or small, goes very far for very long with bad management. Because that is the case, Barrick Gold has been careful and selective when choosing management. As people leave and new people arrive, Barrick Gold has been careful to vet management and high-level employees in such a way that it has protected the company's interests and kept moving forward. Not all gold mining companies can say that with any kind of conviction, but it is crucial for any company that wants to see continued success.

Every Company Has Its Weaknesses

Like other companies in its industry, there are areas in which Barrick Gold could improve. That is common with any company and any industry, and is not a cause for alarm. Still, anytime there is room for improvement it is important to consider what changes to make. Accusations of environmental practices that are not sound have been a thorn in the side of Barrick Gold for many years. Environmental groups and activists have been very vocal about the problems they allegedly see with the company and the way it mines for gold in specific areas and countries.

One of the main issues with the environmental concerns relates to the heavy metals that are used in the mining operations. Additionally, spills of mercury and cyanide have been reported. In Norway, the company was excluded from the Government Pension Fund because of what the country deemed "unacceptable risks" to the environment. Naturally, this is cause for concern to Barrick Gold, as the company needs a good reputation to attract business and to keep investors interested in what it can offer to them.

Competition is on the Horizon, and Getting Closer

Barrick Gold is clearly a very strong company despite its tangles with environmental groups, but in any industry there is always competition that has to be addressed. Barrick Gold may be the biggest gold producer, but behind every strong leader there are followers who are just bucking for promotion. Such is the nature of industry, and other companies such as Anglo Ashanti (NYSE:AU) and Newmont Mining are focused on growth and development strategies that could take them beyond Barrick Gold in the future.

Most people who buy gold as an investment or a gift do not really think that much about where it comes from, but gold mining is a difficult, expensive, and complex process. There is a great deal of money to be made from it, and companies are always vying to be the best and the strongest. A large number of gold mining companies exist, but many are small and do not pose much threat to Barrick Gold at this time. That could change in the future, and the company is aware of that possibility. Strategies are being undertaken to ensure that Barrick Gold stays strong and can stave off the competition as the future unfolds.

Some Thoughts on Barrick Gold as an Investment

Investing in gold is a popular thing to do, especially when the economy is struggling or the US dollar (or currency of one's home country) is weak. However, investing in gold is not the same thing as investing in the companies that mine the gold. For the serious investor with strong cash flow, an investment in Barrick Gold could be a great entry point for an investment.

If you are considering investing in gold mining companies, Barrick Gold would be one of the better options. Yes, they have some environmental troubles. While that is not a positive, it is also something to be expected in companies that handle gold mining and other heavy mining operations. There is always risk to the environment. Additionally, Barrick Gold is clearly at the forefront of what it does, and has been there for some time. Smart and strategic buying decisions have helped it move to the peak of its industry, and it looks as though it is poised to stay there.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.