Why Barrick And Newmont May Do Better Than Goldcorp If The Gold Price Won't Substantially Increase

| About: Goldcorp Inc. (GG)

Summary

My point of view is that as of today other gold stocks, like Barrick Gold Corporation, are perceived by investors to be better positioned than Goldcorp.

Although Goldcorp Inc. pays higher dividend to its peers its shares are rising at a slower pace than those from Barrick and Newmont.

I explain why Newmont and Barrick may report better results than Goldcorp Inc. if gold price will not significantly increase in 2016.

My point of view is that as of today other gold stocks, like Barrick Gold Corporation, are perceived by investors to be better positioned than Goldcorp Inc. to face a period in which the price of gold may not substantially increase because of strengthening economic conditions and increasing interest rates (uncertainty):

"Investors are also looking ahead to testimony from Fed Chair Janet Yellen on Wednesday and Thursday, triggering continued uncertainty around the potential for the central bank to still raise interest rates this year."(here).

And mainly because of slowing down economic growth in China.

That's why the program of Barrick to reduce operating costs is for me a clear sign that a Significant Increase In The Gold Price In 2016 may not take place.

Mine's cost structure and average grade are the key determinants of the market's response to a given change in the gold price.

Here I show the costs-to-sales of Goldcorp Inc. (NYSE:GG) over the last 3 years as well as the average grade of proven resources, the multiplier Profit-Gold Price and key performance measures:

Picture 1.

Click to enlarge

Table 1.

Goldcorp Inc. (NYSE:USA), Gold produced and sold

Year

Revenues

Costs

Cost/Rev.

Multiplier Gold profit

Average grade

2014

$3,262

$2,636

0,81

5,21

0,78

2013

$3,371

$2,523

0,75

3,98

0,79

2012

$3,753

$1,994

0,53

2,13

0,69

In Millions of USD

Click to enlarge

Revenues = Gold sold (ounces) x average realized gold price (per ounce);

Costs = Gold produced (ounces) x All-in sustaining costs (per gold ounce).

Multiplier Gold profit = 1 / (1 - cost/rev. ratio).

Total contained x 31.1034768 grams / Total tonnage is used as formula to calculate the grade of proven reserves when it is not specifically indicated.

Here I show the costs-to-sales of Barrick Gold Corporation (NYSE:ABX) over the last 3 years as well as the average grade of proven resources, the multiplier Profit-Gold Price and key performance measures:

Picture 2.

Table 2.

Barrick Gold Corporation
, Gold produced and sold

Year

Revenues

Costs

Cost/Rev.

Multiplier Gold profit

Average grade

2014

$7,953

$5,399

0,68

3,11

1,63

2013

$10,093

$6,557

0,65

2,85

1,41

2012

$12,173

$7,525

0,62

2,62

1,39

In Millions of USD

Click to enlarge

Here I show the costs-to-sales of Newmont Mining Corp (NYSE:NEM) over the last 3 years as well as the average grade of proven resources, the multiplier Profit-Gold Price and key performance measures:

Picture 3.

Table 3.

Newmont Mining Corp
, Gold produced and sold

Year

Revenues

Costs

Cost/Rev.

Multiplier Gold profit

Average grade

2014

$6,592

$5,241

0,80

4,88

1,24

2013

$7,646

$6,080

0,80

4,88

1,23

2012

$9,084

$6,571

0,72

3,61

1,16

In Millions of USD

Click to enlarge

Goldcorp Inc. has a lower average grade of gold proven reserves (Au g/t), which involves more effort (more operating costs) to extract the metal. If the price of the precious metal will not significantly increase, this may result in a deteriorating of the business of the company. Less cash from operating activities to be reinvested in the business and less cash to distribute to its shareholders.

On the contrary Barrick and Newmont, which are, instead, mining at a higher average grade, are sustaining less operating costs and if the price of the precious metal will not increase as expected, it will result in less operating costs, more cash to reinvest in the business and in reducing the debt situation.

Barrick and Newmont pay smaller dividends to their shareholders than Goldcorp Inc. does today. Logically a stock that generates higher dividends than its peers should be in great demand on the stock market and so its price will rise at a faster pace.

Table 4.

Stock

Dividend

Payment

NYSE:GG

$0,02

Bi-monhtly

NYSE:ABX

$0,02

quarterly

NYSE:NEM

$0,025

quarterly

Click to enlarge

But if you look at the chart below, Goldcorp inc. shares are rising at a slower pace than Barrick and Newmont shares:

Click to enlarge

Over the last trading month, Goldcorp Inc. share price increased 17.85%, Newmont Mining Corp. +39.86% and Barrick Gold Corp. +41.45%.

One explanation is that investors may think that Goldcorp will suffer if it does not have an effective program ready in the event that the gold price will not increase significantly and might further reduce the cash that pays out to its shareholders in the form of dividend.

Beta market:

Picture 4.

Click to enlarge

Goldcorp and Barrick move in the opposite direction of the stock market. Newmont moves in the same direction of the benchmark, but it is less volatile.

Goldcorp and Barrick share price may have been influenced by short positions moved on expectations on rising in the gold price.

According to my point of view Newmont and Barrick will report better results than Goldcorp Inc. because of a better position than Goldcorp Inc. and are more prepared to face a not substantial but widely expected increase in gold price, rather than a significant increase in the price of the precious metal because of improvement in some macroeconomic variables.

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.