Recently, Fitch Ratings announced that it is maintaining the
Issuer Default Rating (IDR) of
) at 'BBB.' The agency also reaffirmed the ratings of the $862.5
million senior unsecured convertible notes and the $2 billion
senior unsecured revolving credit facility at 'BBB.' The Rating
Outlook was kept at Stable by Fitch.
Fitch said that Goldcorp's portfolio has got substantial
reserves with impressive mine lives. More importantly, these
reserves are mostly located in areas where there is low
Also, the ratings agency holds Goldcorp's credential of being
one of the world's lowest cost senior producer of gold in good
light. Moreover, the company is highly focused on growing its
business both organically and inorganically, a strategy which will
help it deliver shareholder value in the long run.
In addition, the company has got adequate liquidity on its
books. It had cash and cash equivalents of $1.4 billion as on March
31, 2012. Its credit line of $2 billion, which is set to mature in
November 2016, was completely untapped.
Fitch noted that Goldcorp's strong liquidity position will
enable it to pursue its large capital spending program. The agency
also said that the company might go free cash flow negative in 2012
as it incurs capital expenditure. But the metric is expected to get
positive again in 2014 assuming gold sells at $1,200/oz from
First Quarter Revisited
Goldcorp had posted disappointing results in the last reported
quarter. It earned 50 cents a share on an adjusted basis in
first-quarter 2012, which missed the Zacks Consensus Estimate of 54
cents. The company witnessed an 11% year-over-year jump in
revenues, which rose to $1.35 billion in the quarter, but came in
short of the Zacks Consensus Estimate of $1.46 billion.
Also, reported net income dropped 26% to $479 million (or 59
cents per share) in the quarter from $651 million or 82 cents
reported a year ago.
Puts and Takes
Goldcorp is among the leaders in its industry and it anticipates
increasing its production by 70% over the next five years. The
company's expansionary moves, exploration projects and increasing
gold prices are expected to act as tailwinds.
Due to its unhedged position to gold prices, Goldcorp is
well-positioned to reap benefits from rising gold prices in the
long-term. The high quality of its assets and the low cost nature
of its operations are also key growth drivers.
However, we believe that the company's near-term prospects might
remain muted due to its aggressive acquisition strategy. Goldcorp
will need to integrate the acquisitions swiftly to maintain or
increase its production capabilities. In addition, higher interest
rates and excessive increase in gold production might push down
prices, hurting Goldcorp's margins in the process.
Neutral on Goldcorp
We currently have a long-term Neutral recommendation on
Goldcorp. The company, which competes with
Barrick Gold Corporation
Newmont Mining Corp.
), retains a Zacks #3 Rank, indicating a short-term Hold
BARRICK GOLD CP (ABX): Free Stock Analysis
GOLDCORP INC (GG): Free Stock Analysis Report
NEWMONT MINING (NEM): Free Stock Analysis
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