On June 6, we downgraded our recommendation on gold mining
) to Underperform following its lackluster first-quarter 2013
results. We are concerned about the high cost outlook for 2013.
BARRICK GOLD CP (ABX): Free Stock Analysis
GOLDCORP INC (GG): Free Stock Analysis Report
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LAKE SHORE GOLD (LSG): Free Stock Analysis
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Why the Downgrade?
Both revenues and adjusted earnings for the first quarter,
reported on May 2, missed Zacks Consensus Estimates. Profit slid
roughly 35% on a double-digit decline in sales, hurt by lower
gold price. Goldcorp also saw higher costs in the quarter with
all-in sustaining cash costs climbing roughly 25% year over year.
It retained its production and cost guidance for the full year.
Estimates for Goldcorp are declining following the release of the
first quarter results. The Zacks Consensus Estimate for 2013 has
gone down 33% to $1.38 per share. On a similar note, the Zacks
Consensus Estimate for 2014 has declined around 30% to $2.09.
With the Zacks Consensus Estimates for both 2013 and 2014 going
down, Goldcorp now has a Zacks Rank #5 (Strong Sell).
Cause for Concern
While Goldcorp anticipates production to speed up in second-half
2013 based on the ramp up at Pueblo Viejo, a joint venture
) and Goldcorp, it faces geopolitical risks along with risks
arising out of volatility in prices of metals. Gold price
environment is not favorable of late. The recent decline in gold
price may dent Goldcorp's bottom line in the second quarter.
Moreover, Goldcorp is exposed to certain short-term challenges at
Penasquito, one of its largest mines. Production at Penasquito
remains affected by some water supply issues and lower grade.
Goldcorp is also seeing cost pressures across its Canadian and
Mexican mines. The company expects cash costs to rise in 2013 on
a year-over-year basis due to industry-wide cost inflation and
the impacts of lower grades and by-product production at
Penasquito. For 2013, the company estimates all-in sustaining
cash costs of $1,000 to $1,100 per ounce, up from $874 per ounce
Mining Stocks That Warrant a Look
While we prefer to stay away from Goldcorp, other companies in
the mining industry with favorable Zacks Rank are
Lake Shore Gold Corp.
Impala Platinum Holdings Ltd.
). Both carry a Zacks Rank #2 (Buy).