The gold rush was undoubtedly one of the most hyped discoveries in the United States. This can be attributed to the fact that anyone who proved to be lucky enough to strike gold would instantly turn into an extremely wealthy individual if not a millionaire of sorts. Today however, the hype has already passed its peak and only a handful of corporations involved in gold mining are doing well as each of try to compete for mining rights to different sites around the globe.
Goldcorp (NYSE:GG) is among the major mining corporations that have been able to hold their own against major rivals such as Harmony Gold Mining (NYSE:HMY), Barrick Gold (NYSE:ABX), Kinross Gold (NYSE:KGC) and Newmont Mining (NYSE:NEM). Founded in the early 1950s Goldcorp has been able to grow into one of the largest gold mining and exploration firms in the United States, accumulating assets in the excess of $21 billion. Goldcorp currently enjoys a market capitalization of about $34 billion coming second to its main rival Barrick Gold, which has a $40 billion market cap. Barrick Gold has been the major source of competition for Goldcorp although the expected growth for the next five years for the two tells of a different story.
Whereas Goldcorp has a PEG of about 2, Barrick Gold is at about 0.2 - meaning that analysts expect Goldcorp to overshadow its main rival. For investors who are keen on the slightest details, it can be seen from Goldcorp's operating margin, which is about 45%, that it still needs more work on it compared with Barrick Gold's, which is at 48%. Despite the fact that Goldcorp is considerably smaller than its main rival, Barrick Gold seems to be operating at a higher efficiency.
In order for Goldcorp to surpass its rivals, it will have to put in place major changes in its operational procedures that will ensure it operates at the optimum point. Newmont Mining, which is smaller than both Goldcorp and Barrick Gold, has been surprisingly doing well on the stock market. Newmont Mining currently has a share price of about $47 while Barrick Gold is at $40, Goldcorp at $41 and finally Kinross Gold trails with $9.
The gold market is fairly stable currently as can be seen from the share price of the different firms, although all have inevitably recorded considerable drops from previous closings. In terms of a decrease in the share price, Goldcorp seems to be doing extremely well as it has recorded just less than 1% in reduction.
With the changing stability of the gold market, it has been of great importance for Goldcorp to ensure that its position in the market is fortified. This has been achieved through a number of mergers and acquisitions over the years that have in turn contributed to Goldcorp becoming the second-largest gold producer in the world.
The most recent acquisition by Goldcorp has been that of the Cero Negro project almost a year ago for close to $4 billion. This move proved to be quite profitable especially for investors as it meant that Goldcorp would have an increase in its net income, which has now grown to nearly $2 billion. This acquisition proved to be an instant success as resource levels for both gold and silver were increased to about 4 million ounces and 36 ounces, respectively. Goldcorp has thus become better equipped to put up a considerable challenge to Barrick Gold for its market position, despite the fact that the latter has also taken measures to ensure its progression.
Shoddy environmental practices in Guatemala
Goldcorp has been for years like many other mining firms the subject of controversy in the areas that it explores. A recent news report indicates that there is a petition in circulation that intends to hold Goldcorp responsible for the damage that it will leave behind after pulling out from a mining site in Guatemala. The report is quick to indicate that the figure quoted by Goldcorp for the cleanup process after mining operations is much lower than that estimated by a neutral party.
With fears spreading that Goldcorp is intent on leaving an environmental disaster in the making after it leaves the site, the community has decided not to succumb to this fate lying down. This petition will not only cast a dark shadow over Goldcorp itself but is bound to have an adverse effect on its current share price should other environmental agencies choose to champion this case. The negative portrayal of Goldcorp by the media will most likely alienate a number of investors.
The controversy surrounding the Guatemalan mine, which is expected to close down in the next six years or so, has elicited a drastic response from major shareholders who have filed a resolution with Goldcorp. They have asked Goldcorp to commit to the full expense of the closure and lay out its plans for the closure.
As an investor in mining stocks, I am quite sure that should Goldcorp be able to sort out the mess that is staring it right in the face, shareholders and investors alike will gain more confidence in the stock. After the looming economic crisis it has been reassuring to note that individuals have turned back to the acquisition of luxury items, which means that the market is sure to pick up gradually. Goldcorp, through its competent management, will be able to steer its stock price to even greater heights.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.