Goldcorp (GG) conducts mining operations in North America, Mexico, Central and South America. Cash flows from operations come from the sale of gold, silver, copper lead and zinc. It is one of the world's largest gold producers along with Barrick Gold (ABX) and Agnico Eagle (AEM).
The lingering debt crisis in Europe and the slow recovery in the U.S. have worked toward keeping the price of gold above $1,600 at the time of writing. Overall predictions for the price of gold in 2012 are between $1,700 and $2,000 per ounce. Demand for copper is being fed by China, India and Japan. This demand is having the effect of keeping copper prices above $2 per pound. Some improvement in the domestic economy has also had a stabilizing effect on copper. The jewelry and investment market for gold overseas is driven by India's consumption of approximately 45% of the world's gold production. China will likely become the largest gold market in the world in 2012 with demand from that region doubling in the next 10 years.
Despite the prices and increasing demand for copper and gold, companies such as Goldcorp that produce the metals have not seen a positive impact on their share price. Various issues at mine sites, ore grades and increased production costs have had a negative impact on the shares of the world's largest producers.
Goldcorp trades around $36, has a year high of $56.31 and a year low of $35.82. The price earnings ratio is 19.30. The earnings per share are $1.89. The dividend yield is 1.40%. Total cash is $1.47 billion and total debt is $7.48 million. The book value per share is $26.77.
The company reported that the first quarter 2012 saw revenues increase 11% from the same period in 2011 to $1.3 billion on gold sales of 545,700 ounces. Net earnings for the quarter were $404 million and $0.50 per share. Net earnings for the first quarter of 2011 were $392 million or $0.49 per share. Gold production totaled 524,000 ounces at a cost of $251 per ounce.
Its Red Lake Mine in Ontario, Canada, had adverse ground conditions which delayed the development of new mine areas on the property. The ore produced was from a low grade area of the mine. The company's strengths in the quarter were its Mexican operations which the company anticipates will provide continued strong results for 2012. The company experienced a shorter development timeline on its properties in the Dominican Republic, Argentina and Canada, which are expected to produce new gold in 2012, 2013 and 2014 respectively. Goldcorp issued 2012 guidance for production of 2.6 million ounces of gold at total costs of $250 to $275 per ounce of gold on a by-product basis of $550 to $600 per ounce of gold on a co-product basis.
Goldcorp recently had its environmental permit suspended for the El Morro copper and gold project in Chile despite having had the permit approved in March 2011. Mine officials are meeting with the permitting authority to best decide how to proceed and what business activities it will be able to continue. Goldcorp is cooperating to solve the deficiencies.
Newmont Mining (NEM) common shares trade around $46, have a 52 week range of $72.42 and $45.22. The price earnings ratio is 68.49 and the earnings per share are $0.67. The dividend yield is 3.1%. The company has $2.79 billion in cash and has $6.15 billion in debt. The book value per share is $26.39.
Gold production in the first quarter 2012 was 1.3 million ounces, down 3% from the same period last year. Revenue and net income rose by 9% to $2.68 billion and $561 million from the same period in 2011. The average price of gold rose by 22% in the first quarter from first quarter 2011. Copper production also declined by a substantial 35% and copper prices remained unchanged from the comparative period in 2011. Copper production declines were as a result of lower grade ore at its existing mines.
Newmont expects that it will receive $1,750 to $2,000 per ounce in 2012. Newmont's Peruvian project is suspended until the company can gauge the economic impact of the government's changes to operational techniques. The Peruvian site was expected to produce up to 400,000 ounces of gold and 150 million pounds of copper commencing in 2014. It is also undertaking the development of Hope Bay in Canada which has approximately nine million ounces of potential reserves and is thought to be the largest known undeveloped gold properties in the world. The company's gold production may reach seven million ounces by 2015. Newmont has new development projects in Peru and Ghana that will be online in 2014.
Barrick Gold trades around $40, has a year high of $55.95 and a year low of $37.45. It has a price earnings ratio of 8.40 and earnings per share of $4.51. The dividend yield is 1.6%. The company has total cash of $2.66 billion and total debt of $13.39 billion. The book value per share is $24.19. The next dividend date is June 14, 2012. Barrick reported a 3% increase in net earnings to $1.03 billion or $1.03 per share in the first quarter of 2012.
The company produced 1.88 million ounces of gold and 117 million pounds of copper in the first quarter of 2012. The costs were $545 per ounce of gold and $2.08 per pound of copper. Guidance for 2012 is 7.3 to 7.8 million ounces of gold at costs of approximately $520 to $550 per ounce. Copper production is expected to be 550 to 600 million pounds at costs of $1.90 to $2.20 per pound. The company is involved in exploration projects in the U.S. and Zambia and comprise 40% of the $450 to $490 of the projects exploration expenditures of 2012. It is also in advanced development at its mine sites in South America and expects to commence production in the second half of 2012 and the first quarter of 2013. The return on development projects is expects to yield 1.5 million ounces of gold and $2.5 billion of EBITDA in the first five years of operation.
Timmins Gold (TGD) is a small operator with six properties in Mexico and only one currently producing ore. The shares trade around $2.30 and have a 52 week range of $3.44 to $1.70. The company has a price earnings ratio of 11.45 and earnings per share of $0.20. It does not pay a dividend. The company has total cash of $9.78 million and total debt of $19 million. Its book value per share is $0.72.
The company reported record production of gold during the first quarter of 2012. It produced 21,532 ounces of gold and 11,740 ounces of silver. The company undertook upgrade and improvements which allowed higher production volumes and the improvements are expected to reflect higher gold and silver production in the second quarter of 2012. It is also anticipating the completion of improvements in capacity on it La Chicharra property to be completed by the fourth quarter of 2012.
The improvements are to capacity generation which anticipates production of 13,000 additional ounces of gold in the beginning of 2013. The expenditures for improvements are estimated at $18 million of which $5 million has already been expended. Timmins' cash cost per ounce in 2011 was $608 per ounce up from $526 in the previous year. This is a small company by comparison. It has high production costs relative to large mining companies. The company has an excellent exploration program that develops high grade ore properties. The price of gold keeps operators like this in business. In a different price environment for metals, a company like this would not put properties into production.
The usual culprits of European crisis, slow growth in the U.S., low interest rate environments and the possibility of another round of quantitative easing are all conspiring to keep gold above $1,600 per ounce. The aforementioned bad news should be good news for metals producers like Goldcorp, Barrick and Newmont. Strangely, the shares of these companies are at or near year lows. Weak first quarter results from Goldcorp's production at Red Lake and the suspension of the El Morro property construction has seen the company take a beating in the market. The grades at Red Lake were lower than expected. The grades will improve as the higher grade portion of the property comes online in late 2012, early 2013.
The El Morro property represents 1% of the NAV and the company is expected to show growth over the next two years with the increase in production of 2.5 million to 4.2 million ounces of growth with 600,000 to 1,2 million ounces of that to occur by 2014. Cash costs per ounce are expected to remain below the industry average. This company's share price continues to puzzle. Setbacks in Chile and Canada are no reason to see the shares take such a beating. There seems to be some explanation in investors exiting gold company stocks and buying Exchange Traded Funds. ETFs allow investors to invest in actual gold as opposed to the companies that produce it. Still, the demand for these funds should have the effect of increasing demand for gold, which would in turn result in more sales from mine operations.
I don't like resource stocks and rarely have them in my portfolio. I am not a believer, and never have been. Maybe it's because I have too much familiarity with metals start-up and exploration-stage companies, but I have to say, the hate for Goldcorp and its peers is beyond even me. The company has remediated every mine site it has taken on. It has complied with environmental regulations in Canada which involve setting aside many millions of dollars to restore mine sites that are now active to be remediated when the mine life expires. It has provided steady employment in every region it is active. It is a very low cost producer compared to its peers.
The factors that contribute to high metals prices are in place and will continue for at least the rest of this year. Is the market signaling that it expects the capacity that is coming on line to have a negative effect on metals pricing? Is there an issue at the management level that is causing investors to walk away? Are the prospects for consumption in China and India too optimistic? Perhaps its lack of a hedging program for its production has come back to haunt it? Really wish I knew.
Goldcorp has excellent properties, produces at low cost and has a great exploration program that will yield high grade ore in mass quantities. I recommend buying Goldcorp at current price levels.