Fitch Ratings has recently reaffirmed Goldcorp's (GG) ratings at BBB. This is because the company has "substantial reserves with impressive mine lives." This means that Goldcorp has a lot of mines that are doing well and tend to produce at high rates for a long period of time. This is exactly what many investors are looking for in a mining stock. In addition, the Goldcorp reserves are located in areas that have a very low geopolitical risk, making them appear even more attractive. There is a low chance that mining activities will be disrupted for political reasons at any point. For the sake of Goldcorp investors and stockholders, this is hopefully a state of affairs that will be maintained for a long time to come.
I feel that Goldcorp is bound to be successful for a few basic reasons. In addition to the reasons I have already mentioned, this is a company that is one of the lowest-cost senior producers of gold in the world. It also has a strategy that is focused on growth, and this will allow the company to deliver a good value for shareholders over a longer period of time. The company also has a good amount of liquidity, and this will allow it to "pursue its large capital spending program". Company expansion, exploration projects, and the increasing price of gold will allow the company to reach its goal of increasing production by at least 70% by 2017. The company is in a good position to benefit from the rising gold prices in the long term.
This will hopefully be enough to offset the fact that Chile's Supreme Court suspended a key permit for Goldcorp's El Morro copper-gold project last month.
The project was controversial right from the start, and this legal blow will no doubt set the company back significantly. The problem stems from environmental issues. The indigenous and agricultural community in the area made an appeal. The court upheld this appeal, and this effectively stopped Goldcorp's activities in the area. Initially, the company anticipated beginning construction in September, and actual production would begin sometime in 2017. Investors and stockholders should hope that the project has not ended altogether, as it would be a profitable endeavor if it is allowed to continue. El Morro would be expected to produce an average of 210,000 ounces of gold and 200 million pounds of copper on an annual basis for seventeen years. At this point, however, we know that a number of issues need to be resolved before the project will be able to move forward. It seems that there is a high chance that this project will never happen at all. Almost needless to say, this will be a major loss for the company, and it will have a negative impact on Goldcorp stock.
This situation is just adding fuel to a fire. Goldcorp is already facing some difficulty as a result of a lawsuit with Barrick Gold (ABX) regarding the ownership of El Morro. No matter what the outcome of a lawsuit is, it always has a bad impact in the companies involved. This is the kind of bad press and bad news that Goldcorp needs to avoid if it is to stay at the top of the mining industry. The compounding effects of these difficulties surrounding El Morro will probably lead to drops in Goldcorp stock as events continue to develop.
Other mining companies may be facing much greater success in their attempts to expand. Competitors BHP Billiton (BHP), Rio Tinto (RIO), and Vale (VALE) have signed up to participate in GlobalOre. This is a company that plans to serve as a rival to China's first iron ore physical trading platform. By investing in emerging markets such as China, I believe that mining companies such as these have the right idea about how to move forward. China is one of the fastest growing markets, so attempts to solidify a presence there is a good move for any company. These companies have set themselves up for success in a growing market, and these stocks will probably face long-term increases as a result.
AngloGold Ashanti (AU) also made a move that I think is very sensible. It decided to buy the remaining 50% of the Crixas mining operation from Kinross Gold (KGC) in Brazil to add to its already existing 50%. This means that the company now has 100% control of the mine and owns all of its production. This is great news for investors, as the production in this mine is substantial. With this purchase, the company also has complete freedom to continue exploration activities in the area, and these could potentially increase production even further in the near future. Regardless, this has put AngloGold Ashanti stock in a good position, and it will likely go up as a result of this purchase.
It seems that Barrick Gold knows how to stay ahead of the competition. It recently made a purchase of the Mill Canyon property in Nevada from Victoria Gold for $24 million. This is a good move, as it allows the company to consolidate its position in the area. The purchase extends the land surrounding its profitable Cortez mine by 7000 acres. As the Cortez mine produces a lot of output at a very affordable price, Barrick Gold is smart to employ a strategy that focuses on the expansion of this mine. Despite being involved the lawsuit I have already mentioned, Barrick Gold stock has great potential to increase as a result of this purchase.
Freeport-McMoRan (FCX), on the other hand, is a company that seems to be in a lot of trouble with locals at its mines. At its Fungurume copper/cobalt mine in the Democratic Republic of Congo, local residents are unhappy that they have not been adequately compensated for making way for the mine. In addition, the recent strike and violence in Indonesia is affecting the company's mining operations, as employees are no longer happy with the terms of their employment. In short, Freeport McMoRan is facing a great amount of opposition, and this will be difficult for the company to handle. I believe the stock will be dropping as a result.
While Goldcorp appears to be a stable company, with potential for long-term success, one cannot ignore its struggles with its El Morro project. I do not believe it is in as bad of shape as Freeport-McMoRan, but the stock will probably face some losses in the near future. In the long-term though, I believe Goldcorp still has a lot of things that are working in its favor, and the stock will probably remain fairly stable as time moves on.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.