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Goldcorp Remains Neutral - Analyst Blog

We maintain our Neutral recommendation on Goldcorp Inc. ( GG ), a leading gold producer engaged in gold mining and related activities including exploration, extraction, processing and reclamation.

Goldcorp reported excellent third-quarter 2011 results. Adjusted net earnings were $0.57 per share compared with $0.33 in the year-ago quarter. Results exceeded the Zacks Consensus Estimate of $0.56.

Revenues also increased 48% year over year to $1.3 billion. The average realized gold price for the quarter rose 39% to $1,719 an ounce. Cash costs totaled $258 per ounce on a by-product basis and $551 per ounce on a co-product basis.

Output in the quarter rose slightly as production gains at its Penasquito mine in Mexico and its Marlin mine in Guatemala, more than offset the impact of production declines at some of its other operations.

Goldcorp continues to be the market leader among gold producers with a forecasted production increase of 60% over the next five years. Goldcorp is benefiting from facility expansion, increasing gold prices and its dominant acquisition strategy.

The company has the highest leverage to spot gold prices due to its completely unhedged position. The long-term rise in gold prices is a positive for the stock as Goldcorp is among the world's lowest cost gold producers.

Goldcorp follows an aggressive acquisition strategy for attaining growth. During 2010, the company completed a total of six transactions. The acquisitions of Cerro Negro and El Morro established two more important operating bases in South America. It also divested its 10.1% equity interest in Osisko in favor of a syndicate of underwriters at a price of C$13.75 per common share held.

However, Goldcorp is exposed to various political and economic risks. We remain concerned regarding the company's near-term prospects due to its aggressive acquisition policy.

Meanwhile, the company's ability to maintain or increase its production is contingent upon its ability to bring new mines into production while expanding reserves at current mines. Goldcorp also faces foreign exchange risk as it pays most expenses in local currencies and sells in dollars.

The company competes with Barrick Gold Corporation ( ABX ) and Newmont Mining Corp. ( NEM ).

We maintain our Neutral recommendation on Goldcorp. Currently, it holds a Zacks #3 Rank (Hold) on the stock.

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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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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