On Mar 6, we issued an updated research report on Goldcorp (GG). While the gold mining giant’s cost-saving initiatives and progress of its project pipeline are encouraging, it remains exposed to volatility in gold prices and has a high debt load.
Both revenues and adjusted earnings for fourth-quarter 2013, reported on Feb 13, missed Zacks Consensus Estimates. On a reported basis, the company slipped to a loss in the quarter on hefty impairment and tax charges. Revenues declined by double digits, hurt by lower gold prices. However, the company provided an upbeat production guidance for 2014.
Goldcorp, a Zacks Rank #3 (Hold) stock, is progressing well with its development projects and remains on track to attain its long-term production targets. The company’s growth drivers lie in its vast array of development and exploration projects. It has an impressive lineup of such projects. Goldcorp expects gold production to rise 13%-18% year over year to 3 million to 3.15 million ounces in 2014.
Goldcorp has the highest leverage to spot gold prices due to its completely unhedged position. It should benefit from facility expansion, cost containment and productivity improvement measures. The company is actively focused on cost reduction, which should support its results moving ahead. Its all-in sustaining costs are expected to decline in 2014.
Moreover, Goldcorp remains committed to return capital to its shareholders, leveraging a healthy balance sheet and strong cash flows. It paid $486 million in dividends in 2013.
However, Goldcorp faces geopolitical challenges along with risks due to volatility in metals pricing. The volatile gold pricing environment represents a headwind.
Decreasing gold reserve is another concern. Goldcorp’s gold reserves fell 15% year over year in 2013 due to depletion from mining amid lower metals pricing environment.
Goldcorp also has a debt-laden balance sheet. Its long-term debt jumped to $1,482 million at the end of 2013 from $783 million at the end of 2012.
Key Picks from the Sector
Other companies in the gold mining industry with favorable Zacks Rank are AngloGold Ashanti Ltd. (AU), NovaGold Resources Inc. (NG) and Richmont Mines Inc. (RIC). While AngloGold sports a Zacks Rank #1 (Strong Buy), both NovaGold and Richmont carry a Zacks Rank #2 (Buy).