Here’s Why Goldcorp’s 2014 Could Be Strong
Anyone who follows the precious metals sector knows that Goldcorp (NYSE:GG) is a behemoth in the space. It has managed the terrible action in gold and silver back in 2013 and still manages to survive. Further, Goldcorp finished the third-quarter with almost $1 billion in cash on hand and $2 billion of an undrawn credit facility. While it is true that capital expenditures outpaced cash flow from operations in 2013, Goldcorp’s efficiency stems from it remaining on the conservative side of things. For example, it took things slowly at its mine in Argentina, Cerro Negro, which will produce 525,000 ounces of gold once it reaches full production levels. The good news is that costs associated with this mine are expected to deliver first gold in mid-2014. The project was expected to start production by the end of this year but was delayed because of lower gold prices and inflation in Argentina, which could pressure initial start-up costs for 2014.
With Gold Over $1,300 an Ounce, Profits Are Guaranteed
Goldcorp pretty much needs gold to stay above an average $1,200 for 2014 in order for this investment thesis to play out. At $1300 or $1350 an ounce, a profit is all but guaranteed. Why? This is because Goldcorp had all-in sustaining costs of $1,136 per ounce for the first nine months of 2013, which is higher than many other competitors such as Yamana gold (NYSE:AUY). One of Goldcorp’s properties that is weighing on this all-in sustaining cost average is the Marigold mine, where Goldcorp owns a 66.7 percent interest and Barrick Gold (NYSE:ABX) owns 33.3 percent. The Marigold mine reported the highest all-in sustaining costs of all projects, coming in at an unsustainable $1,604 per ounce during the first nine months of 2013. Goldcorp has gone on record that it is seeking to sell its holdings in Marigold mine. Once done, this will lower overall costs.
All-in sustaining costs have trended a touch lower recently for the company as a whole, from $1,279 per ounce in the second-quarter to $992 per ounce in the third-quarter of 2013. Despite lower gold prices and higher production costs, Goldcorp has been delivering good results. Goldcorp reported an earnings per share of $0.23 for the most recent quarter which beat analyst consensus expectations of $0.20. It was a real surprise and bodes well for here in 2014. However, there may be write downs in the company’s future.