Gold miner Goldcorp (GG, Financial) has put in a solid performance this year as it has been able to take full advantage of rising gold prices. This performance did not go unnoticed as its stock is up more than 20%. The company is mainly focused on controlling its cost structure and continuing with strong production. Going forward, gold prices are expected to be better as compared to last year, which could be one of the key factors for a sustained performance. Let us have a detailed look at its performance.
A strong performance
Goldcorp’s fourth-quarter results beat its own guidance on an all-in sustaining and co-product basis. Its production was also in line with its guidance on account of a strong quarter. Its gold mines at Peñasquito, Red Lake, and Pueblo Viejo delivered higher throughput in the fourth quarter, with gold production at a record 769,000 ounces. This solid performance can be credited to the company’s strong operations, which brought down overall cost and optimized productivity.
Considering its cost management initiatives and strong production levels, management is optimistic about its prospects. These initiatives helped the company achieve an adjusted quarterly revenue of $1.2 billion along with earnings of $74 million.
Last year, its gold production increased 11% to 2.7 million ounces at a sustaining cost of $1,031 per ounce. This was well below its cost guidance of $1,050 to $1,100 per ounce. Management continued to focus on execution; and nearly every mine in its portfolio either met or exceeded production guidance. And it further plans to strengthen its current performance by optimizing its portfolio
Positive moves
The company had acquired Sysco Mining Corporation and recently, it also announced its plans to divest the Marigold mine in Nevada. Management believes that the successful completion of both transactions will result in significant enhancements to Goldcorp’s high quality gold mine portfolio.
Its results reflect the impact of lower metal prices on its overall performance, along with the swift response by its operating team. Moreover, Goldcorp significantly reduced its spending forecast in mid-2013 and reiterated this fact in the year-end forecast.
The company undertook various initiatives, but it did not adversely affect its growth profile that includes contributions from two important new gold mines in 2014. Its strength in the current metals market is demonstrated by 54.4 million ounces of proven and probable gold reserves, which is an increase of 18%.
Management is committed to being a gold-focused company, along with adding value to its investors. It has various expansion plans under its sleeve, which will drive the company ahead. It plans to deliver two new outstanding gold mines in 2014. Its Cochenour project is expected to be completed and integrated by 2015, bringing a new source of gold production to Red Lake.
The company’s solid growth in its cash flow enabled it to give a dividend of $0.60 per share in 2013 and with the increasing cash flow, the company has plans to further maximize the shareholder returns while pursuing growth opportunities. Management anticipates its production to considerably increase in this fiscal and expects it to be in the range of 3 million and 3.15 million ounces, with all in sustaining costs decreasing to between $950 and $1,000 per ounce.
The launch of its three new projects will further strengthen the company’s gold profile for the next five years. Management also believes that its production will increase by 50%, which will be led by the increase in production at Pueblo Viejo and Peñasquito. Thus, Goldcorp’s strong production growth, combined with continued decreases in all-in sustaining costs, is expected to generate increasing cash flows even in a flat gold price environment.
Conclusion
Goldcorp expects that its growth rate will double in the next five years. According to the consensus estimate, earnings are expected to grow at a CAGR of 15.6% for the next five years, which doesn’t come as a surprise given Goldcorp’s solid production and cost profile. Considering these factors, Goldcorp seems to be a good investment option.
