Investors Can Expect Better Times At Goldcorp

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May 04, 2015

Amidst a depressing commodity market Goldcorp (GG, Financial) continues its sluggish performance even as it reported its fourth quarter result. The stock had risen considerably since it touched its 52-week low in December, but gave up all its gains after the miner posted a wider than expected loss during the previous quarter. In spite of these headwinds we must not forget the strong fundamentals it has along with the strength in its asset portfolio. Let’s have detailed look into all the factors that could impact its movement in the days ahead.

Strategies worth watching

It had to bear the heat of a whopping $2.3 billion impairment charge on its Cerro Negro mine in Argentina. But it does not seem to be a matter of big concern, and the management is confident about the future prospects of Cerro Negro believing it to be a cornerstone operation for Goldcorp in the long run.

In addition, the company has a number of low cost mines in its portfolio, which will play a decisive role to improve its bottom line. To further enhance its asset class, Goldcorp recently completed the acquisition of Probe Mines Limited, which owns the Borden Gold project near porcupine. This new addition will provide a new source of low cost high quality gold for its porcupine mine and the company will be able to take advantage of the investments it has already made in the region.

While these new inclusions will strengthen its business, it is also laying off unwanted assets to focus on core operations. In this direction, the company sold its Wharf mine in Lead, South Dakota to Coeur mining for a sum of $105 million in cash. Goldcorp CEO Chuck Jeannes states that:

“This divestiture of Wharf unlocks additional value for Goldcorp shareholders and demonstrates our commitment to focusing on the core assets within our portfolio.”

More smart moves

Earlier in April, the company had sold its interest in Marigold with the same intent and this is the second divestment with in a period of twelve months. Goldcorp will definitely benefit from these strategic decisions and boost its business in the long run.

Going forward, there are some positive cues that might improve its balance sheet for the year. Since the company has completed two of its mines namely Cerro Negro and Éléonore, its capital spending will decline significantly by around 40%. This is good news for investors as the company is now positioned for a sustained period of free cash flow generation.

Also, its production has been growing year over year with a consistent reduction in its all in sustaining cost, which will further drive free cash flow to its business. The management anticipates its production to increase around 20% for the year, which is expected to fall between 3.3 million and 3.6 million ounces, while it’s all in sustaining costs is expected to be around $875 and $950 per ounce compared to $949 per ounce last year.

Conclusion

At present Goldcorp does not have any trailing P/E but its forward P/E seems impressive at 21.07, which reflects that its earnings will improve in the future. Moreover analysts believe that the commodity downtrend is nearing its end as the prices have hit the bottom. These are encouraging facts, which combined with improving fundamentals of the company projects Goldcorp as a good long term bet.