Goldcorp Glitters on Impressive Results
Goldcorp (NYSE:GG) is one of the world’s fastest-growing senior gold producers. Its low-cost gold production is located in safe jurisdictions in the Americas and remains 100 percent unhedged. The stock is up about 5 percent since I last highlighted the company. I reiterate that gold and silver equities are a good buy right now, particularly for the long term, as I see gold prices climbing higher due to inflationary pressures rising.
Right now, inflation is at bay – however, it is only a matter of time before inflation picks up, in my opinion. Those holding gold, silver, and stocks in the sector as insurance against inflation will be rewarded in time. But is Goldcorp living up to expectations that I had for it? To address this issue, a review of Goldcorp’s recent performance and prospects moving forward is warranted.
The most recent quarter was actually quite impressive. Gold sales in the first quarter were 684,000 ounces on production of 679,900 ounces. This compares to sales of 595,100 ounces on production of 614,600 ounces in the first quarter of 2013. Silver production totaled 9.6 million ounces, compared to silver production of 5.6 million ounces in the prior year’s first quarter. This is incredible year-over-year growth. What’s more, all-in sustaining costs were $840 per ounce of gold compared to $1,134 per ounce of gold in the first quarter of 2013. That is impressive cost savings.
Turning to cash now, adjusted revenues were $1.2 billion, essentially unchanged from the first quarter of 2013, as increases in metals sales were offset by lower metals prices. Net earnings in the quarter were $98 million, or 12 cents per share, compared to $309 million, or 38 cents per share, in the first quarter of 2013. That is a touch disappointing, although adjusted net earnings in the first quarter totaled $209 million, or 26 cents per share, compared to $253 million, or 31 cents per share, in the first quarter of 2013.
They declined mostly due to the lower prices of gold and silver. It should be noted that adjusted operating cash flow was $281 million, or 35 cents per share, compared to $400 million, or 49 cents per share, in last year’s first quarter. While these numbers may seem disappointing, the quarter was much better than expected.
Chuck Jeannes, Goldcorp’s president and CEO, said in a press release: “2014 is a year of significant forecast growth for Goldcorp, and solid first quarter production and lower all-in sustaining costs represent a strong start toward the achievement of our guidance. Our low-cost production profile will benefit from an infusion of new gold production from our three gold projects, starting with expected first production at Cerro Negro in just a few months. With initial gold production at Éléonore and Cochenour following closely behind, Goldcorp remains well-positioned for accelerating cash flow.”
Looking ahead, the stock is still a buy. It is only up 5 percent from my last recommendation, although two dividends have been paid since. What you need to be cognizant of is that the company reconfirmed its prior guidance for 2014 of between 2.95 and 3.1 million ounces at all-in sustaining costs of between $950 and $1,000 per gold ounce. I actually think the company will come in at the lower end of this cost guidance, based on recent performance.
The company also indicated that capital spending would be between $2.3 billion and $2.5 billion. This year should see substantial growth for the company. You are being paid a 2.5 percent dividend yield to wait for the coming rebound in gold and silver. The stock has broken above its 200-day moving average and seems poised to move much higher this year.
Disclosure: Christopher F. Davis holds no position in Goldcorp and has no plans to initiate a position in the next 72 hours. He has a buy rating on the stock and a $29 price target.