We are maintaining our Neutral recommendation on
Goldcorp Inc.
(
GG
). The company's first-quarter 2012 adjusted net earnings
(excluding onetime items) of 50 cents a share missed the Zacks
Consensus Estimate of 54 cents. Revenues jumped 11% year over year
to $1.35 billion, missing the Zacks Consensus Estimate of $1.46
billion.
Gold sales in the quarter fell 13% to 545,700 ounces, but a 22.5%
jump in gold price helped Goldcorp improve its top line. However,
cash costs totaled $251 per ounce of gold on a by-product basis and
$648 per ounce of gold on a co-product basis, significantly higher
than $188 per ounce and $504 per ounce, respectively, in the
year-ago period. As a result, the company's top-line growth failed
to pass onto the bottom line as adjusted earnings remained almost
flat from last year.
Moving ahead, Goldcorp expects to produce 2.6 million ounces of
gold in 2012. Total cash costs are expected between $250 and $275
per ounce of gold on a by-product basis and between $550 and $600
per ounce of gold on a co-product basis.
Goldcorp enjoys a leading position in the industry and aims to
increase its production by 70% over the next five years. The
company has been working hard to meet this target through a number
of acquisitions. The Cerro Negro and El Morro acquisition helped
Goldcorp establish two more important operating bases in South
America, providing further impetus to its already substantial
growth pipeline. Moreover, the addition of the Camino Rojo deposit
near Penasquito will further add to Goldcorp's growth profile at a
lower cost.
Also, Goldcorp has a high leverage to spot gold prices due to its
completely unhedged position. This will help the company derive the
maximum value due to rising gold prices in the future. Moreover,
Goldcorp is one of the lowest-cost gold producers and has a strong
balance sheet.
However, the company's aggressive acquisition policy can also be an
area of concern as integrating new mines and businesses might not
be completely seamless. Also, Goldcorp's ability to maintain or
increase its production depends on its ability to bring new mines
into production while expanding reserves at current mines.
Further, Goldcorp might face problems from higher interest rates
and excessive increases in gold production. These factors might
push down the price of gold and hurt the company's prospects.
Moreover, the slowdown in the global economy, especially in
emerging markets like India, could weaken the demand for gold and
further hinder Goldcorp's performance.
Goldcorp, which competes with
Barrick Gold Corporation
(
ABX
) and
Newmont Mining Corp.
(
NEM
), retains a Zacks #3 Rank, indicating a short-term Hold
rating.
BARRICK GOLD CP (ABX): Free Stock Analysis
Report
GOLDCORP INC (GG): Free Stock Analysis Report
NEWMONT MINING (NEM): Free Stock Analysis
Report
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