Goldcorp Inc. (GG, Financial) appears at the top of the list of Desjardins Capital Markets for the large-cap stocks that the firm recommends buying for 2017. The firm says the company “will be able to illustrate an attractive multiyear guidance outlook on both production and costs,” as reported by the Financial Post.
At the moment, Goldcorp is not the best gold mining stock in the industry, especially when it is compared to its more direct peers, Barrick Gold Corp. (ABX, Financial), in terms of gold output and AISC per ounce, and Newmont Mining Corp. (NEM, Financial), in terms of gold output.
Goldcorp extracts fewer ounces of gold from its reserves than Barrick and Newmont and at a higher AISC per ounce than the world’s largest gold producer.
According to its third-quarter 2016 report, the gold producer says it “remains on track to achieve 2016 production guidance of 2.8 million to 3.1 million gold ounces at AISC between $850 and $925 per ounce.”
For 2016 Barrick expects to reach a total gold output of between 5.25 million and 5.55 million ounces and a total copper output of between 380 million and 430 million pounds. At Barrick, gold is being extracted at a cost of sales of approximately $800 to $850 per ounce and at AISC between $740 and $775 per ounce.
The production of copper, which represents about 15% of Barrick’s total business, is going to cost approximately $1.35 to $1.55 in cost of sales per pound and $2.00 to $2.20 in AISC per pound.
At Newmont, the attributable gold production is expected to range between 4.8 million and 5.0 million ounces in 2016, at a cost applicable to sales of $640 to $690 per ounce and at AISC of $870 to $930 per ounce.
The largest gold producer in the U.S.Ă‚ expects to produce approximately 40,000 to 60,000 tonnes of copper in 2016, at a cost applicable to sales ranging between $1.90 and $2.10 per pound and at AISC of $2.30 to $2.50 per pound.
Furthermore, when we have a look at the “Mineral Reserve Grade (g/t)” figures, according to Agnico Eagle Mines' (AEM, Financial) presentation, Goldcorp is below the gold stock industry average with a mineral reserve grade (g/t) of 1.06.
Source: Agnico Eagle’s Corporate Update - November 2016
The mineral reserve grade is a very important indicator for the quality of the assets base of the gold mining company. The lower the grade is, the higher the cost to extract one ounce from the ground, “making high-grade ore deposits a crucial consideration for all types of investors in mining,” writes Mining.com.
But with a reference to the five-year difference between gold production and mineral reserve grade, Goldcorp, with its 29%, seems to be better positioned than Barrick (35%) and Newmont (32%). Ore processing at Goldcorp is affecting the quality of its assets base less than at Barrick and Newmont.
The assets base of Goldcorp has been affected by operational issues over 2016. In particular, Goldcorp missed those investors’ expectations on a substantial improvement at operations that once solved will allow the company to generate $250 million annually in two years.
The delay in operational improvements that otherwise would have avoided inefficiencies is seen by Andrew Kaip, an analyst at BMO, as the main reason for Goldcorp’s poor performance in the stock market over fiscal 2016 compared to its peer group and its recent downgrade.
As shown by the graph above, over the last 12 months Goldcorp gained 21% on the New York Stock Exchange (NYSE), but it was outperformed by Barrick and Newmont with 86% and 67%.
The turnaround in the miner's operations that investors and analysts are expecting concerns the improvement at the Cerro Negro mine and mineral resource at Cochenour.
Besides operational improvements at Cerro Negro mine and at Cochenour, Desjardins Capital Markets sees other items that should stimulate the growth of Goldcorp’s market value. The firm says that “cost savings initiatives at its Red Lake and Peñasquito projects” plus a “weaker Mexican peso and higher prices for copper and zinc” will also help Goldcorp’s stock beat the market, as reported by the Financial Post.
For the current year, analysts expect Goldcorp will generate an EPS of 12 cents on average, ranging between a low estimate of minus 1 cent and a high estimate of 23 cents, a 363.6% increase from one year ago.
Source: Yahoo Finance
As of today, analysts recommend buying shares of Goldcorp; the recommendation rating is 2.3. The analysts’ average target price is $18.74 ranging between a low target price per share of $15 and a high target price per share of $28.
Recently, Goldcorp has been upgraded by TD Securities. The Canadian firm has recommended buying shares of the miner and forecasts a target price of $18.50 per share.
Goldcorp closed at $14.94 per share, up 68 cents (or 4.77%) on the NYSE Thursday, and the share price ranged between a low price of $14.49 per share and a high price per share of $15.12. A volume of 12,456,954 shares were traded on the NYSE versus an average volume of 9.56 million shares traded over the last 10 days and an average volume of 8.6 million shares traded over the last three months.
Since the beginning of the new year, the gold stock gained 9.13%, but it underperformed the VanEck Vectors Gold Miners ETF (GDX, Financial) with 0.97%.
During the third quarter, First Eagle Investment (Trades, Portfolio) and David Dreman (Trades, Portfolio) reduced their positions in Goldcorp by 15.44% and 6.01% while Mario Gabelli (Trades, Portfolio) increased his position by 0.06%.
The precious metal for immediate delivery closed at $1,176.70 per troy ounce on the London Bullion Market Thursday, up $12.45 or 1.07% from the previous close.
On the market of gold futures, the Comex, one ounce of gold gained $15.9 or plus 1.37%, from a price of $1,163.80 per ounce on Jan, 4 to a price of $1,179.70 per ounce on Jan. 5.
Disclosure: I have no positions in any stock mentioned in this article.
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