Goldcorp (GG) is currently not the most attractive asset in the basic materials sector. Declining demand for gold and production headwinds have decreased its revenue more so than direct competitors like Barrick Gold (ABX). Goldcorp has weaker metrics and weaker growth projections than Barrick and other major firms in the sector. Current shareholders and interested investors should consider Goldcorp more so as a short sell or short squeeze opportunity hedged with a long-term position in one of the more stable and robust performers in the sector.
Goldcorp is most comparable to firms based in North America that have a core focus on gold mining like Barrick Gold, Newmont Mining (NEM), Agnico-Eagle Mines (AEM) and Freeport-McMoRan (FCX). Goldcorp's stock price is around $41, while Barrick and Freeport-McMoRan are around $38 and $36, respectively. Barrick's market cap is around $38 billion and Freeport's market cap is around $34 billion while Goldcorp's market cap is around $33 billion. Goldcorp has one of the lower average daily trading volumes at around 5.9 billion. Barrick's average volume is around 10.5 billion, Freeport's is around 15.4 billion and Newmont Mining's is around 7.4 billion.
Both Barrick and Newmont have beta scores under one, while Goldcorp's beta is slightly over one. Goldcorp's annualized dividend of $0.54 is the lowest among these firms. The annualized dividend for Barrick and Agnico-Eagle Mines is $0.80, Newmont Mining's $1.40 and Freeport-McMoRan's is $1.25. Goldcorp price is around 26 times earnings while Barrick's price is around 9.4 times earnings and Freeport-McMoRan's price is around 10.9 times earnings. Goldcorp's EPS is currently around $1.57, while Barrick's EPS is around $4.10 and Freeport-McMoRan's is around $3.31. Goldcorp's price-to-sales ratio is around 6.3 - this is double the rate of Barrick's ratio of 2.6, Freeport-McMoRan's ratio of 1.86 and Newmont Mining's ratio of 2.39.
Agnico-Eagle Mines shows the highest sales growth with 30.2% growth over the past 5 years and 5.97% sales growth in the past quarter, YOY. Freeport-McMoRan also has higher sales growth in the past five years of 29% than Goldcorp's 26%. Both Newmont Mining and Barrick have smaller sales deficits by more than 850 bps in the past quarter, YOY, than Goldcorp's 15.8% deficit. Barrick's return on equity is around 20.3%, its operating margin is around 42.9% and its net margin is around 28.09%. Goldcorp's corresponding ratios are around 7%, 36.5% and 28.16%, respectively. Goldcorp's stock has increased 16.1% since its last earnings release.
In its recent earnings release Goldcorp reported declining revenues and production obstacles that led the firm to reduce its 2012 guidance. Goldcorp's revenue of $1.1 billion in the second quarter decreased 16% YOY and decreased 17% sequentially. Net earnings in the second quarter decreased to $268 million from $489 million YOY and $429 million sequentially. The total cash cost of gold per ounce increased to $370 from $185 per ounce YOY due to lower by-product credits reduced gold sales volumes in the quarter. Production costs decreased 17% sequentially but this was primarily due to the temporary suspension of shipments from the Alumbrera asset in the second quarter. Operating cash flows increased by $220 million YOY while free cash flows decreased to $76 million from $83 million YOY.
Declining revenue in the second quarter was from a 12% decrease YOY in gold sales volume partially offset by a 5% increase YOY in average realized gold prices and a 21% decrease in average realized silver prices partially offset by a 6% increase in silver sales volume. Decreased revenue was also due to a 74% decrease in copper sales volume at Goldcorp's Alumbrera asset. Demand for gold declined primarily behind the concerns with instability in Europe while the US dollar and treasuries alongside German bonds and Japanese yen have recently been the preferred assets in the market. Declining demand from jewelry, technology and central banks due to higher prices has decreased the price for gold by 20% over the last 10 months.
Goldcorp's gold production increased 10% sequentially, but there were significant headwinds during the quarter that will reduce its initial 2012 guidance. Increasing seismic activity led to operating delays and reduced production at the Red Lake asset. Goldcorp lowered 2012 projected gold production form this asset to 460,000 to 510,000 ounces from the initial guidance of 650,000 ounces. Inadequate water supply during the second quarter at the Penasquito asset led Goldcorp to decrease the projected 2012 gold production to 370,000 to 390,000 ounces from the original guidance of 425,000 ounces.
Goldcorp lowered its initial total 2012 guidance of 2.6 million ounces to a range of 2.35 to 2.45 million gold ounces. The total cash costs were also revised. The cost for gold on a by-product basis was increased to $310 to $340 per ounces from the initial $250 to $275 guidance. On a co-product basis, total cash costs increased to $625 to $650 per ounce of gold from the initial $550 to $600 per ounce. The guidance for silver decreased from 34 million ounces to 30 to 31 million, zinc decreased from 400 million to 310 to 325 million and lead decreased from 180 million to 155 to 160 million.
On the positive note, Goldcorp recently announced the first gold production at the Pueblo Viejo asset in the Dominican Republic. Commercial production is expected to start in the fourth quarter and Goldcorp projects 68,000 to 85,000 ounces of gold at a cost of $400 to $500 per ounces from its 40% stake in 2012. In the first five years of operation, Goldcorp expects 415,000 to 450,000 ounces at a cost of under $350 per ounce of gold form this mine.
But Barrick owns the other 60% of the project and expects 625,000 to 675,000 ounces of gold annually at a cost of $300 to $350 per ounce. Almost at every metric and asset, Barrick is a more attractive investment than Goldcorp for the long-term. Goldcorp recently appointed a new COO from in-house and hopes he can provide effective leadership through its next phase of growth.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.