We are retaining our Neutral recommendation on
Goldcorp Inc.
(
GG
). Second quarter adjusted earnings (excluding one-time losses and
gains other than stock-based compensation) of 34 cents per share
missed the Zacks Consensus Estimate of 41 cents.
Revenues slipped roughly 16% year over year to $1,113 million on
lower gold sales and trailed the Zacks Consensus Estimate. Goldcorp
failed to meet expectations in the quarter despite a rise in the
average realized gold price as production fell at the Red Lake mine
and cash cost jumped at a double-digit clip.
Goldcorp is an unhedged producer of gold and as such, it is well
positioned to gain from increase in gold prices. It enjoys a
leading position in the industry and aims to attain 70% production
growth by 2016.
The company has a high leverage to spot gold prices due to its
completely unhedged position. This will help it to 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.
Goldcorp has been working hard to meet its long-term growth target
through a number of acquisitions. The Cerro Negro and El Morro
acquisitions helped it 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.
Goldcorp also has a number of projects at hand, which are expected
to help it to achieve its long-term growth objectives. The company,
in August 2012, registered its first gold production at the Pueblo
Viejo mine in the Dominican Republic. The company holds a 40%
interest in the Pueblo Viejo mine while
Barrick Gold Corporation
(
ABX
) holds the remaining stake. Pueblo Viejo is expected to contribute
around 68,000 to 85,000 ounces of gold to Goldcorp's production
this year.
However, Goldcorp has been hit by a decline in production from the
Red Lake mine. The company, in July 2012, cut its gold production
target for 2012 given the weak production from the Red Lake mine in
the first half of the year and lower expectations from the
Penasquito mine for the second half.
At Red Lake, Goldcorp's production continued to be weighed down by
operating delays in the High Grade Zone due to increased seismic
activity. On the other hand, insufficient water supply is affecting
mill throughput at Penasquito. The company has slashed its
production guidance for these mines factoring in these bottlenecks.
Moreover, 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.
Goldcorp currently retains a Zacks #3 Rank, which translates into a
short-term Hold rating.
BARRICK GOLD CP (ABX): Free Stock Analysis
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GOLDCORP INC (GG): Free Stock Analysis Report
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