Gold stocks have had a difficult year and Goldcorp (GG) is no exception. But that should not deter investors from investing in a company with strong growth metrics.
For the third quarter of 2011, revenues increased by 48% to $1.3 billion dollars as the average realized gold price increased by 39% year over year to $1,719 per ounce. Gold production was flat at 592,100 ounces compared with 588,600 ounces last year while the average realized gold price of $1,719 per ounce for the quarter versus $1,239 last year.
Cash costs of $258 per ounce on a by-product basis reinforce Goldcorp’s status as one of the lowest cost gold producers in the world.
The balance sheet remains rock solid, with $1.5 billion dollars in cash. Goldcorp's credit facility was recently upgraded from $1.5 to $2 billion dollars, giving the company power to leverage up if the right acquisition falls into its lap.
The production side had a solid quarter with Marlin in Guatamala and Porcupine in Ontario being the shining stars. Progress continues at Penasquito with full production expected in the first quarter of 2012. When up and running at full capacity Penasquito will provide 350,000 ounces of gold production and 28 million ounces of silver production, in addition to lead and zinc by-product credits.
On the development side, Goldcorp just received construction approval for Eleonore which is expected to start production in late 2014, contributing 600,000 ounces of gold production at estimated cash costs of less than $400 per ounce. Cerro Negro remains on schedule for first production in 2013 and is expected to contribute 550,000 ounces of gold at cash costs of less than $200 per ounce for the first five years. The most recent 43-101 indicates 13 million proven and probable reserves, which will be expanded as the large land package continues to yield new discoveries.
Repair work at Pueblo Viejo continues as heavy rains earlier this year caused a six month delay. In addition, a new natural gas plant is being added to replace the heavy fuel plant. Given the recent collapse in natural gas prices, this appears to be a smart move which will pay significant dividends on the cost side when up and running. Not content with small projects, Goldcorp’s portfolio includes many projects which would be considered cornerstone projects for other mining firms. For this reason, capital expenditures are much higher and the dividend yield is a bit lower than its peers.
Goldcorp’s stock price has been beaten down in the recent sell-off, but current prices provide an attractive entry point for long-term investors. At these levels, Goldcorp has at most a 10% downside risk, with the seasonally strong first quarter just ahead of us.
Source: Goldcorp website
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Disclosure: I am long GG.