The slow rise of gold has also put some wind in the sails of gold producer Goldcorp (NYSE: GG) as its stock soared by over 22%, year to date. Besides the recent rally of gold, are this company’s fundamentals still solid in terms of production? Also, how is this company measures up to other gold producers such as Barrick Gold (NYSE: ABX) and Newmont Mining (NYSE:NEM)?
Price of gold
The current price of gold is around $1,300, which is nearly 9% higher than it was at the end of 2013. Despite the latest recovery of gold, it’s still well below its level during the first half of 2013. Due to the plunge in the price of gold during 2013, gold companies such as Goldcorp and Barrick had to revise down their estimates of the price of gold: Newmont Mining and Barrick revised down their assumptions on the price of gold to $1,300 per ounce; Goldcorp to $1,200 per ounce. This means, Goldcorp was more conservative than Newmont Mining and Barrick in its assumptions.
As a result, Newmont Mining, Barrick and Goldcorp recorded a high impairment of mining interests and goodwill provisions during the second quarter of 2013. Newmont Mining impairment provision was $2.3 billion; Barrick’s impairment provision was roughly $8.7 billion; Goldcorp’s impairment costs were $2.5 billion. Keep in mind, however, these provisions didn’t have a cash related effect on these companies’ earnings. Looking forward, if the price of gold continues to rally and perhaps even pass the $1,400 mark, this might encourage these companies to revise up their assumptions and their valuation will improve. Let’s turn to examine Goldcorp’s expected changes in production and production costs in 2014.
Production on the rise
Goldcorp’s gold production rose by 11.6% during 2013 and reached over 2.6 million ounces of gold. For 2014, the company plans to keep increasing its production to range between 3 million and 3.15 million ounces of gold — 15% higher than in 2013. This rise is mainly due to the Éléonore and Cerro Negro mines, which will start to produce this year, and the rise in production in the Peñasquito and Pueblo Viejo mines. Despite the ongoing rise in production, Goldcorp continues to slowly reduce its capital expenditure: For 2014, the company’s capex is expected to reach around $2.4 billion — back in 2013 the company’s guidance for capex was $2.8 billion.
In comparison, Newmont Mining also plans to slightly increase its production by roughly 2%. Conversely, Barrick plans to slash its production from 7,166 thousands of ounces to 6,250 thousands of ounces — a 13% drop.
Besides the rise in Goldcorp’s production, the company’s changes in its production costs could also affect its bottom line.
Lower production costs
During last year, Goldcorp’s all-in sustaining costs declined to reach an average of $1,031 per ounce. For 2014, the company expects another decrease in its production costs to an average of $975 per ounce — 5.4% lower than in 2013. This could have some positive effect on the company’s profitability. Newmont Mining also expects its production costs will decline by 2.6%. On the other hand, Barrick isn’t going to do any better in 2014 and its all-in sustaining costs are expected to rise by 3.8%.
Takeaway
The recent recovery of the price of gold isn’t the only factor worth considering when investing in a gold producer. Goldcorp’s plans to increase its production and cut down its production costs in 2014, which could further increase the company’s earnings. Finally, Goldcorp is doing well compared to its peers including as Barrick and Newmont Mining and is likely to continue to do so in 2014.
For further reading:
- Will Gold Recover from its Recent Fall?
- What Could Impede This Gold Company?
- Will The Gold Market Continue to Cool Down?
- Will Gold Continue to Dwindle?
Disclaimer: The author holds no positions in stocks mentioned and does not plan to initiate positions within 120 hours of the posting of this article. This article is to be used for educational, research and informational purposes only and does not constitute investment advice. There are no guarantees, expressed or implied, of future positive returns in regards to the subject matter contained herein. Understand the risks inherent in investing before making the decision to invest or consult an investment professional for more information. Reasonable due diligence has been performed in regards to the information in this article. However, the author expressly disclaims any liability for accidental omissions of information or errors in fact.