Goldcorp On Track to Deliver a Solid 2014

This senior gold miner’s strong first quarter results indicate it is on track for a solid 2014.

| More on:
The Motley Fool

Canadian gold-mining heavyweight Goldcorp (TSX: G)(NYSE: GG) continues to make significant progress in cutting costs and growing profitability in a challenging operating environment weighed down by softer precious metal prices.

This saw the company report some solid results for the first-quarter 2014, despite the difficult operating environment, with the standout result being particularly low all-in sustaining costs per ounce of gold produced.

First-quarter results were better than expected
For the first quarter 2014, Goldcorp’s all-in sustaining costs were among some of the lowest, falling a whopping 26% year over year to U.S. $840 per ounce. This is only marginally higher than Barrick Gold’s (TSX: ABX)(NYSE: ABX) first quarter all-in sustaining costs of U.S. $833 per ounce, which was the lowest of the senior gold producers.

This significant drop in costs coupled with gold rallying earlier this year allowed Goldcorp to deliver better than expected financial results. The company beat the average analyst earnings estimate per share of U.S. $0.14 by a particularly healthy 86%, reporting adjusted net earnings of U.S. $0.26 per share.

These results were helped by Goldcorp being able to increase quarterly production and delivering some solid operating results despite the sale of two gold assets during the quarter. Gold production was up by a solid 11% year over year to 679,900 ounces, while silver production jumped a massive 71% to 9.6 million, all of which helped to boost the bottom line.

More importantly for investors is that on the back of these solid results, Goldcorp has confirmed its 2014 guidance of 2.95-3.10 million ounces of gold being produced and all-in sustaining costs of between U.S. $950 to U.S. $1,000 per ounce. However, when the first-quarter results are coupled with all-in sustaining costs per ounce being significantly lower than guidance, I would expect to see full year 2014 all-in sustaining costs to be lower than this guidance.

Divestments and ongoing project development bodes well
During the first quarter Goldcorp continued with plans to divest itself of low margin and non-core assets. This saw the sale of its shareholding in Primero Mining for $225 million completed in March and the sale of its share of the Marigold mine completed in April 2014. These asset sales have provided further capital that can be directed to strengthening the company’s balance sheet and used to fund the continuing development of core mining assets.

Goldcorp has also confirmed its Cerro Negro project in Argentina is on track to commence production in mid-2014 along with first production from the Éléonore Project in Canada expected to commence in late 2014. Both of these will further boost Goldcorp’s production from low-cost high ore grade mines, boding well for lower production costs and increased profitability over the long term.

But it wasn’t all smooth sailing for Goldcorp during the quarter with its bid for Osisko failing. There are also concerns over whether Goldcorp will be required to revise its gold reserves downwards by the end of 2014, with the company having calculated its gold reserves of million ounces using a gold price of $1,300 per ounce.

While this is marginally below the current price of gold of $1,302 per ounce, it is significantly higher than the price used by many of its peers to calculate their gold reserves. Barrick Gold has used $1,100 per ounce, whereas Yamana Gold used a very conservative $950 per ounce.

There have also been some particularly bearish calls on the outlook for gold prices, with Goldman Sachs expecting it to hit a low of $1,050 per ounce during the year. Accordingly, any sustained fall in the price of gold will force Goldcorp to recalculate its reserves, which will see them drop from current levels, with gold reserves which are uneconomic to mine excluded from its asset base.

Like Barrick Gold, Goldcorp has successfully readjusted its operations to allow it to remain profitable in a difficult operating environment characterized by softer precious metal prices and a volatile pricing outlook.

Clearly if the company is able to continue producing similar results to its first quarter throughout 2014 it will deliver a solid financial performance despite the volatile outlook for precious metal prices.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Matt Smith does not own shares of any companies mentioned.

More on Investing

Gold bars
Metals and Mining Stocks

Why Alamos Gold Jumped 7% on Wednesday

Alamos (TSX:AGI) stock and Argonaut Gold (TSX:AR) surged after the companies announced a friendly acquisition for $325 million.

Read more »

tsx today
Stock Market

TSX Today: Why Record-Breaking Rally Could Extend on Thursday, March 28

The main TSX index closed above the 22,000 level for the first time yesterday and remains on track to post…

Read more »

Nuclear power station cooling tower
Metals and Mining Stocks

If You’d Invested $1,000 in Cameco Stock 5 Years Ago, This Is How Much You’d Have Now

Cameco (TSX:CCO) stock still looks undervalued, despite a 258% rally. Can the uranium miner deliver more capital gains to shareholders?

Read more »

Businessman holding tablet and showing a growing virtual hologram of statistics, graph and chart with arrow up on dark background. Stock market. Business growth, planning and strategy concept
Dividend Stocks

TFSA Magic: Earn Enormous Passive Income That the CRA Can’t Touch

If you're seeking out passive income, with zero taxes involved, then get on board with a TFSA and this portfolio…

Read more »

potted green plant grows up in arrow shape
Stocks for Beginners

3 Growth Stocks I’m Buying in April

These three growth stocks are up in the last year, and that is likely to continue on as we keep…

Read more »

Man with no money. Businessman holding empty wallet
Dividend Stocks

2 Stocks Under $50 New Investors Can Confidently Buy

There are some great stocks under $50 that every investor needs to know about. Here’s a look at two great…

Read more »

clock time
Tech Stocks

Long-Term Investing: 3 Top Canadian Stocks You Can Buy for Under $20 a Share

These three under-$20 stocks offer excellent buying opportunities for long-term investors.

Read more »

Arrowings ascending on a chalkboard
Energy Stocks

Beat the TSX With This Cash-Gushing Dividend Stock

Canadian Natural Resources stock is well set up to beat the TSX as it continues to generate strong cash flows…

Read more »