As Goldcorp (GG) stock has slide in price, analysts have shaved expectations off the company's expected earnings by $0.03 and gave a more dramatic revision (downward) for its 2013 year consensus. So how did the stock do? Gold production was up for the quarter (YoY) and earnings were also up as the final EPS come in at $0.62 up from $0.50 a year ago. The strong finish came in because of strong performance in its Red Lake Canadian mine and the Penasquito mine in Mexico.
Goldcorp looks like it has a bright future (production-wise)
The company has three mines in development expected to drive 70% of the production over the next five years or so. These are the three mines:
- Cerro Negro in Argentina remains on track for initial gold production by the end of 2013.
- Éléonore in Quebec is focusing on capital efficiency and starting its production platform in 2014.
- The Cochenour in Red Lake is developing well and is expected to bring stronger production profile to the Red Lake complex following the start of production in 2015.
The company is a good mining outfit; like all good companies, it is focused on trying to bring value to shareholders. For mining, it is strengthening its portfolio of high quality ore fields and keeping ore production as low as possible. But this doesn't change the fact that the profitability of the company is intertwined with gold prices. Goldcorp is involved in the whole gamut of gold mining, from mining to exploration, extraction and processing. Most of its energies are put into the Red Lake region in Canada, which is the largest gold mine in Canada. But is still is dependent upon a strong gold price to power its growth.
The Global Environment has changed
Stocks are marching higher as gold becomes an afterthought in a changing global economic environment. Gold is the traditional inflation fighter and hedge investment, but not when the environment appears to be getting better. It looks like China and the emerging markets are back on track and Europe does not appear to look as bad as it once did. While this is not good for gold, if may be even worse for miners. Since the price of the metal drives the miners and stock prices are usually leveraged, their value may weaken even fast than the gold price.
So what can we expect in the near future? While gold smiles at currency devaluation, it does not look like currency devaluation is in the plans of the economic nations, I know G7 is looking at "market determined" exchange rates for competition. For this reason, it does not look like gold will have any extended bullish moves in the near future. To me, this makes Goldcorp a hard sell as an investment right now.
It's not just Goldcorp; competitors are struggling just as much. Africa Barrick Gold PLC, majority owned by Barrick Gold (ABX) out of Canada, posted a $46 million net loss in the fourth quarter when a year earlier it posted a $55.1 million profit. At the same time, the cost of sales increased to $217.8 million verses $177.5 million a year prior. So it is also focused on reducing costs to keep cash flows at certain levels.
Post G-20 & Chinese New Year Outlook
So what do declining gold prices tell us about other things going on in the world? The likelihood that Europe will collapse is a lot lower than it has been. It looks like U.S. economic stimulus may become a thing of the past if the economy continues to improve like it is. Possible lower U.S. deficit if Congress can work things out.
The stock looks like it might have formed a nice base and we could see it moving in a price channel now. It is not hard to figure out what is on the mind of every investor: will the stock move up? When I observe the RSI and the MACD indicator, I am seeing a sideways movement and both have a bearish lean to them. I do not take that as an indication that the stock is going to continue to move down. As its builds its base (or consolidates to a sideways movement), weakness always occurs. This may be nothing more than that. But it is definitively not signs of growing strength.