Although the price of gold rose by over 5% since the beginning of the year, shares Goldcorp (NYSE:GG) edged down by a little close to 2%, year to date. Some other gold producers have also rallied since the start of the year including Barrick Gold (NYSE:ABX) and Newmont Mining (NYSE:NEM): Their shares increased by 33% and 11%, respectively, up to date. So what's is holding back Goldcorp compared to its peers and gold prices?
For one, GG pays a much higher dividend and on a monthly basis. ABX and NEW offer an annual yield of 0.8% and 0.5%, respectively. While GG's dividend yield is roughly 2%. The higher yield along with the monthly payment may have brought down its stock. But even after accounting for this difference, Goldcorp should have done better in the stock market on account of rising gold prices.
Debt, production costs and output
Relative to its peers, Goldcorp's debt burden isn't high, as indicates in the following table. Lower debt should have eased investors to consider GG as a possible gold related investment.
Source: Yahoo finance
As you can see, the debt-to-equity ratio for GG is the lowest of the three. And in times of uncertainty (despite the recent rally) around the direction of gold prices -- when companies save up on cash, deleverage and slash capex - Goldcorp's low debt levels should have helped its stock shine relative to its peers.
All three companies have been aiming to cut down their production costs. And while GG's all-in sustaining cost isn't the lowest for the industry it isn't the highest. As an example, Newmont's AISC target AISC for 2015 was $950; Goldcorp's target AISC for 2015 was $875.
As I pointed out in the past, unlike GG, which plans to increase its output this year, both Barrick Gold and Newmont Mining don't intend to augment their yield. This may be perceived as a wanted and conservative approach by some investors that don't know if gold prices were to climb in the coming months. In any case, if investors are bullish about the gold market, a company that expands its production should steer more investors towards it stock. It's worth noting that the company didn't always reach its annual goals when it comes to production: Back in 2014 the output was only 2.87 million ounces of gold, albeit its guidance range was between 2.95 and 3.1 million ounces of gold. This may put investors a bit more skeptic about the ability of the management to meet its annual goals.
So while Goldcorp has low debt, plans to increase its output and doesn't have a high AISC, the stock is still down for the year. Perhaps it all boils down to valuation.
In terms of valuation Goldcorp is still seems overpriced compared to its peers, as presented the table above; even after the rally of ABX and NEM, both companies' EV/EBITDAs are still lower than GG's. The same for the forward P/E. Investors are aware of GG's high valuation. And if they think gold were to rally over the coming years, them they may be more incline to consider a company that has a lower valuation.
The gold market is showing some early signs of recovery mostly driven by the drop in long term interest rates and rise in the risk aversion in the markets. These developments didn't help, for now, to pull up shares of Goldcorp. Other gold producers may face higher debt and AISC, but they are also priced lower than Goldcorp. This seems to be enough to keep gold enthusiasts to consider other gold companies over Goldcorp. For more see: What Could Impede This Gold Company?
Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.