On Nov 28, we reaffirmed our Neutral recommendation on Goldcorp (GG). While the gold mining giant remains exposed to a weak gold price environment and cost pressures, we are encouraged by progress of its project pipeline.
Why Held?
Adjusted earnings for the third quarter of 2013, reported on Oct 24, beat the Zacks Consensus Estimate but sales missed. Lower gold prices hurt revenues and profit. However, both gold production and gold sales rose in the quarter. Goldcorp narrowed its gold production guidance for the full year.
Goldcorp, a Zacks Rank #3 (Hold) stock, is progressing well with its development projects and remains on track to attain its long-term production targets. The company’s growth drivers lie in its vast array of development and exploration projects. It has an impressive lineup of such projects.
Goldcorp should benefit from facility expansion, cost containment and productivity improvement measures. The company has the highest leverage to spot gold prices due to its completely unhedged position.
Moreover, Goldcorp remains committed to return capital to its shareholders leveraging a healthy balance sheet and strong cash flows.
However, 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 also faces geopolitical challenges along with risks due to volatile metals prices.
In addition, Goldcorp is still seeing cost pressures across a number of mines. Cash costs are expected to rise in 2013 on a year-over-year basis due to industry-wide cost inflation and the impacts of lower grades. For 2013, the company expects all-in sustaining cash costs of $1,050 to $1,100 per ounce, up from $874 per ounce in 2012.
Other Stocks to Consider
Other companies in the gold mining industry with favorable Zacks Rank are Agnico Eagle Mines Limited (AEM), Denison Mines Corp. (DNN) and Lake Shore Gold Corp. (LSG). All of them carry a Zacks Rank #2 (Buy).
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