When it comes to the gold mining sector and the way some of the larger names have been beaten up over the past year, any hint of positivity is certainly a good thing. With that said, Goldcorp (GG) recently announced that it expects a 13%-18% increase in gold production (FY14 expectations fall into a range of 3.0-to 3.15 million ounces of Gold) and a 15%-20% decrease in cash costs over the next 12 months. In the wake of Goldcorp's upbeat announcement, I wanted to highlight several reasons why I'm staying long on Goldcorp.
#1 Recently Announced Production Expectations
On Thursday, January 9 Goldcorp announced that FY 2013 gold production totaled 2.67 million ounces which was up 11% on a year-over-year basis and FY 2014 gold production is expected to grow between 13% and 18% and fall into estimated range of 3.0-to-3.15 million ounces. The company also noted that all-in sustaining costs are seen falling to $950-$1,000 per ounce in 2014 and 15%-20% over the next two years as gold production is expected to rise by an estimated 50%. If the company can meet and/or exceed its production expectations while cutting costs by an estimated 15%-20% over the next 12-18 months, I see no reason why Goldcorp can't meet and/or exceed FY14 EPS estimates which are calling for the company to earn $1.11/share on revenue of $4.9 billion.
#2 Recent Trend Behavior
On Friday, shares of GG, which currently possess a market cap of $18.83 billion, a forward P/E ratio of 22.30, and a dividend yield of 2.59% ($0.60), settled at a price of $23.19/share. Based on their closing price of $23.19/share, shares of GG are trading 7.50% above their 20-day simple moving average, 2.22% above their 50-day simple moving average, and 11.38% below their 200-day simple moving average.
Although these numbers indicate a short-to-mid-term uptrend and a long-term downtrend for the stock, I actually think the current share price of $23.19 offers investors a considerable point of entry especially since production is expected to grow between 13% and 18% over the next 12 months.
#3 5-Year Dividend Behavior
Since January 13, 2009, the company has increased its monthly dividend four times in the last five years, with the most recent increase having taken place in January of 2013. The company's forward yield of 2.68% ($0.60) coupled with its ability to maintain its quarterly dividend over the last five years, make this particular gold mining play a highly considerable option, especially for those who may be in the market for a moderately-yielding stream of monthly income.
Based on the overall behavior of the gold mining sector and recent downtrend in the price of gold, I don't expect Goldcorp to increase its monthly dividend for at least the next 12 months.
#4 Comparative Dividend Performance
Not only does the company's 2.68% dividend yield and 5-year dividend growth make this particular stock a highly attractive option for most income-driven investors, its dividend growth over the last five years versus a number of its sector-based peers is also something investors should consider.
From a comparative standpoint, Goldcorp's monthly dividend has grown an impressive 233.3% over the past five years, whereas the distribution growth of its sector-based peers Barrick Gold (ABX) and AngloGold Ashanti (AU) had actually fallen 58.33% and 40.86%, respectively.
It should also be noted that sector-based peer IAMGold (IAG) recently suspended the distribution of its dividend because it needed the "flexibility to take advantage of opportunities when they arise."
Risk Factors (Most Recent 40-F)
According to Goldcorp's most recent 10-K, there are a number of risk factors investors should consider before establishing a position. These risk factors include but are not limited to:
#1 - Goldcorp's operations are subject to all of the hazards and risks normally encountered in the exploration, development and production of gold, silver, copper, lead and zinc including unusual and unexpected geologic formations, seismic activity, rock bursts, cave-ins, flooding and other conditions involved in the drilling and removal of material, any of which could result in damage to, or destruction of, mines and other producing facilities, damage to life or property, environmental damage and possible legal liability.
#2 - Mining and milling operations are subject to hazards such as equipment failure or failure of retaining dams around tailings disposal areas which may result in environmental pollution and consequent liability. Although appropriate precautions to mitigate these risks are taken, these risks cannot be eliminated.
#3 - Goldcorp must continually explore to replace and expand its Mineral Reserves and Mineral Resources as its mines produce gold, silver, copper, lead and zinc. Goldcorp's ability to maintain or increase its annual production of gold, silver, copper, lead and zinc depends in significant part on its ability to find new Mineral Reserves and Mineral Resources, to bring new mines into production, and to expand Mineral Reserves and Mineral Resources at existing mines. There is no assurance that Goldcorp will be able to maintain or increase its annual production, bring new mines into production or expand the Mineral Reserves and Mineral Resources at its existing mines.
For those of you who may be considering a position in Goldcorp, I strongly recommend keeping a close eye on the company's continued cost-cutting efforts, its dividend behavior, and its ability to enhance shareholder value over the next 12-24 months as each of these factors could play a role in the company's long-term performance.