One of the leading gold producers in the world, Goldcorp (GG, Financial), once again topped analysts’ estimates on both the top as well as bottom line for the second quarter. The company benefited from various cost-cutting pains and rock-solid production, producing a total of 650,000 ounces of gold during the second quarter. The companywide costs enhanced to $852 an ounce from $1227 an ounce a year earlier and the company now remains on track to achieve a low end of its cost guidance of $950 an ounce to $1000 per gold ounce for the full year.
The Vancouver-based gold producer also swung to profit as it reported net income of $181 million or earnings of $0.22 per share as against net loss of $1.93 billion or $(2.38) per share, surpassing the $0.14 earnings per share estimated by the consensus. Its net revenue increased 25% to $1.11 billion for the second quarter from $889 million a year earlier in the same quarter that also beats consensus estimates of $991.93 million in revenue for the quarter.
Goldcorp will get better
Looking ahead, the company continues to see strong momentum in its gold production and therefore hasn’t changed its production outlook of $2.95 million to 3.1 million ounces for the full year. However, it has lowered down its capital spending in the range of $2.3 billion to $2.4 billion from $2.3 billion to $2.5 billion.
Goldcorp is effectively carrying out various cost improvement initiatives through its Operating for Excellence efficiency program such as rising throughput, increasing grades, and recoveries at its Goldcorp’s mines that should complement its growth and add value to its overall production of gold. Goldcorp looks really excited with commencement of its Cerro Negro mine of late that will certainly enhance the production capabilities of the company. This mine is expected to produce approximately $130,000 to $180,000 ounces for the remaining half of the year, which is undoubtedly a good investment of the company that should deliver substantial value in the long run.
A strong portfolio
In addition, the company has many other mines in its pipelines such as the Éléonore project that is expected to soon start producing gold and its Cochenour project, whose production is forecast to begin by this year end should assist the company to expand its margins and improve its cash flow going forward as these new projects are well within the capital cost guidance should enhance the overall production of Gold and minimize the costs associated. Besides, the company continues to see an augmented production for its Peñasquito mine that had contributed tremendously in the earnings for the company during the second-quarter 2014.
Furthermore, Goldcorp is working aggressively to improvise or enhance the overall quality of its asset portfolio through various strategic moves such as divestment of its non-core assets and embracing potential assets through Merger or acquisitions.
M&A has always been a triumph card for the company as it is more than a strategic move to it. In this course, Goldcorp has suspended many non-yielding mines to improve its profitability. The company has suspended mining at its El Sauzal mine in Mexico as a safety precaution after instability in the pit wall as the mine, which is in its final year of active mine life was experiencing movement in the high-wall slope of the Trini pit.
These efforts by the company are expected to add more value to the shareholder’s wealth as in the past it has unlocked approximately $5 billion additional value for our shareholders.
The company is expecting its all-in sustaining costs to increase on the back of higher sustaining capital which also strengthens its long term prospects. Goldcorp is seeing that its costs are trending down on a year-over-year basis as the company is bringing new low cost production. This is an excellent cost saving initiative
Concluding remarks and valuations
Goldcorp is currently trading at the forward P/E multiple of 22.69, with PEG ratio of 2.50 expected for the next five years. The analysts have also predicted CAGR of 11.50% for this year and CAGR of 28.70% for the next year respectively that highlights some near-term gain to the investors .
