When discussing the 12-month performance of the Gold Mining Sector,its pretty clear that things haven't been all that great. Even though its near-term performance has shown a fairly considerable improvement, there's still a lot of ground to be made up.
In the side-by-side chart comparison below, the Market Vectors Gold Miners ETF (GDX) demonstrated a 43.20% decline between January 29, 2013 and January 29, 2014. However, its performance since January 1, 2014 has shown some signs life, especially since the ETF has recovered 8.94% over the first four weeks of the new year.
That being said, there is no doubt in my mind that the recent developments at both Goldcorp (GG) and Randgold Resources (GOLD) has positively impacted the ETFs near-term performance. In the wake of recent developments at both companies, I wanted to highlight why I think staying long on these two particular mining plays could enhance the overall growth of one's portfolio.
#1 - Goldcorp Inc.
On Wednesday, shares of GG, which currently possess a market cap of $20.08 billion, a forward P/E ratio of 35.84, and a dividend yield of 2.43% ($0.60), settled at a price of $24.73/share.
Based on a closing price of $24.73/share, shares of GG are trading 8.81% above their 20-day simple moving average, 11.13% above their 50-day simple moving average, and 3.47% below their 200-day simple moving average.
Even though 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 $24.73 offers investors a considerable point of entry; especially since the company's overall gold production is expected to grow between 13% and 18% over the next 12 months.
Production Guidance Seems Fairly Positive
On Thursday, January 9th, Goldcorp announced that FY 2013 gold production totaled 2.67 million ounces, 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 its "all-in" costs are expected 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, calling for the company to earn $1.11/share on revenue of $4.9 billion.
By cutting costs and increasing production, not only will Goldcorp's share price grow at a considerable pace, its annual dividend (which is paid out on a monthly basis) could see an increase of 2%-4% over the next 12-24 months.
#2 - Randgold Resources
On Wednesday, shares of GOLD, which currently possess a market cap of $6.50 billion, a forward P/E ratio of 16.84, and a dividend yield of 0.68% ($0.48), settled at a price of $70.54/share.
Based on a closing price of $70.54/share, shares of GOLD are trading 9.52% above their 20-day simple moving average, 7.04% above their 50-day simple moving average, and 1.23% 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, Its current price point creates somewhat of a buying opportunity for potential investors. Why? When compared to one of its sector-based peers, AngloGold Ashanti (AU), its shares are trading at just over 16.8x forward earnings whereas AngloGold Ashanti's shares are trading at 21.3x forward earnings.
Randgold's Loulo-Gounkoto Mines Are On Pace To Surpass 2013 Revised Estimates
On Wednesday, January 29, Randgold Resources announced that its Loulo-Gounkoto gold mining complex in Mali is likely to beat its revised production target for 2013.
Since Randgold Resources is expected to exceed its 2013 revised guidance numbers, while keeping its 2014 estimates well within range, there's a very good chance the company could meet and/or exceed both its FY13 and FY14 EPS and Revenue estimates. It should be noted that the street is expecting Randgold to earn $2.95/share on revenue of $1.2 billion during FY13 and $4.19/share on revenue of 1.33 billion during FY14.
For those of you who may be considering a position in either Goldcorp or Randgold Resources, I strongly recommend keeping a close eye on each company's ability to meet and/or exceed its updated gold production over the next 12-24 months. In closing, I'd also keep a very watchful eye on the price of gold as any considerable drop could impact the value of either company's overall production and send shares down a very unfavorable path.