Goldcorp (GG, Financial) expects soft gold production in the near term. However, the company is trying to end the fourth quarter with good production figures. But, the question is, will it do well in the long run? Let's find out.
The way ahead
Goldcorp is expecting U.S Federal Reserve to raise the interest rates. This will pressurize gold prices downward, giving Goldcorp some bright signs to perform better in the upcoming quarters with the gold production. Goldcorp seems to be well positioned for success in the current metal price environment. However, this focus on the short-term thumbnails might also hurt its long-term prospects. This is because the overall industry is not discovering enough gold despite strong exploration investment. The company is now sure of a multi-year decline in the gold prices.
The company is highly anticipating the demand and supply metrics to play an important role in its long-term growth momentum. Though the supply is declining due to soft gold production, Goldcorp is still bullish about its long-term gold prices. The rise in the gold prices in the future are expected to benefit Goldcorp in the long run, giving a competitive advantage among its peers.
Positives to consider
But Goldcorp also has some attractive points which can further help it to improve its market share in future. Despite the soft gold market, Goldcorp hasn’t made any alterations in its dividend offering which can also be a good attraction to the investors as many of its peers have cut their dividend. The company is also generating impressive cash flows which is also strengthening its liquidity.
The company now has funds and it is making significant investments in acquisition and construction of new gold mines. In addition, it is also disposing its non-core assets to further enhance its cash flows. These efforts are meaningful and Goldcorp is expecting impressive contribution to its growth strategy by it in 2015.
Moving forward, Goldcorp is counting on Peñasquito which is showing some positive signs. Goldcorp is looking for a strong quarter at it which will also support its expectations to achieve its annual cost and production guidance. Further, the company is pleased with the on track construction of Northern Well Field. The company is expecting this project to come in full pace by 2015. With these projects, Goldcorp is confident of unlocking significant long term value in future.
Conclusion
Looking at the fundamentals, the stock doesn’t have a trailing P/E as the company is still making losses but forward P/E of 21.09 exhibits handsome growth in the earnings. However in the long term its earnings are disappointing as it is growing a CAGR of just 13.10% which is lower than the industry average of 21.57%. The company is putting efforts to turnaround but the soft gold production is obstructing the smooth flow. However, the gold prices will improve but the pace is slow and it might take some time to ramp up. But as of now, the investors can surely include Goldcorp in their portfolio as it seems to be a good pick now.
