Goldcorp Looks Well-Positioned Despite a Weak Performance

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Mar 08, 2015

Goldcorp (GG, Financial), the gold producer released less than impressive results during the fourth quarter. The company released numbers which fell short of analysts’ estimates. However, in terms of production Goldcorp achieved a solid 37% growth as compared to the same period last year. The company is looking for better production figures in upcoming quarters as its Red Lake operation which is among its key mines are seeing solid yield and also its newly developed areas Upper Red Lake and Footwall zones are also exhibiting good momentum. With future looking bright and many cost cutting initiatives, Goldcorp looks is expecting a better operational and financial performance in 2015.

A closer look

The company posted a net loss of $2.4 billion which can scare few investors away from the stock. But the company is least concerned about this loss as it impacted due to the non-cash after tax impairment charge worth $2.3 billion of Cerro Negro. As it is an accounting charge it is least expected to reflect much of the Goldcorp’s ground performance. Moreover, Goldcorp still expects Cerro Negro to be a cornerstone operation for Goldcorp for long term.

Goldcorp is optimistic about its performance in 2015 on the back of positive growth it is seeing with production. It is expecting a good 20% growth in production in 2015. Further, Goldcorp has also started a new pit which is expected to impact grades positively at its Penasquito mine. Analysts are expecting the grades to increase in the upcoming year which will also lead to an increase in metal grade, contributing in the gold production to between 700,000 and 750,000 ounces for the year.

The way forward

It remains on track with the construction of the Northern Well Field which is expected to end up in 2015. This will supply water to Penasquito for long term. In addition, Goldcorp is engaged in pre-feasibility studies about its two projects namely Richmond process and Pyrite Leach process. The company is planning to combine these two projects for long term profitability. This move is a wise move by the company which will surely add value and extend life of its Penasquito mine.

Moving on, Goldcorp will be laser focusing on staying competitive in the market hence it will be looking for bringing improvement in productivity and operations which can mould its growth efforts for 2015. Besides growing production, Goldcorp is focusing on various other initiatives to improve profitability. It is now focusing on reducing the capital expenditure to improve the margins leading to better profit margin. This will surely help the company to generate impressive free cash flow which will strengthen its flexibility, also making the balance sheet strong and impressive.

In addition, Goldcorp is also seeing various other growth opportunities which and to fetch these opportunities, it is making significant investments in these opportunities.

Conclusion

Now moving on to the fundamentals of the stock, the company posted a loss hence there is no trailing P/E but the forward P/S of 22.01 indicates solid growth in earnings in the near term. Since it is seeing growth in production it is expecting better contribution by them in future. But as the analysts are expecting weakness in the gold prices to continue in future as well, the stock doesn’t look impressive for long term. Its earnings are growing at a CAGR of just 11.10% which is less than the industry average of 20.41%. Thus, as per investment perspective I would like to suggest the investors to pick Goldcorp for short term only.