A Shining Addition
Goldcorp (NYSE: GG) is joining our Metals and Mining Portfolio. This gold mining company’s share price has fared better than many of its rivals over the past year, and has recovered sharply off its mid-July low. But gold’s recent slide has landed it back in a bargain range, even as the company’s long-run fundamentals appear stronger than ever.
The key is a rich reserve base, from which it is starting to ramp up production. The Red Lake Mine in Ontario Canada, for example, is set to accelerate output from a first half 2012 rate of 218,200 ounces. Cost guidance is on track as well, with cash costs of $568 an ounce in the first half. The company has maintained a solid balance sheet by supplementing its robust cash flows from operations with targeted asset sales, such as its stake in Primero Mining Corp.
Goldcorp has had some production problems over the past year, which in turn have ratcheted up production costs. These have principally been at Red Lake, although also at the Penasquito mine in Mexico. Together, these are the company’s largest mines. Bringing down costs will depend in large part on getting them back up to speed. Goldcorp will, however, start up production at a mine in Argentina in the second half of 2013 — with potential output of 550,000 ounces at a cost of less than $200 an ounce.
Mining at the Pueblo Viejo site in the Dominican Republic is expected to yield between 68,000 and 85,000 for Goldcorp and its partner Barrick (TSX: ABX, NYSE: ABX) the rest of the year. And the Eleonore mine in Quebec is anticipated to produce 600,000 ounces of gold annually for 15 years, starting in 2014.
Looking further out, the El Moro project in Chile should bring somewhat higher cost production on stream in 2017, assuming it can reach a deal with local native Americans and resolve electricity challenges. There’s also the Nocha Buena mine in Mexico, with an estimated one million ounces of gold in the ground.
That adds up to massive potential increases in reserves and production of gold, as well as silver, copper and zinc in the coming years. How much money the company makes depends on executing its ambitious agenda and something entirely beyond its control — gold prices. But at this price for the stock, both outcomes appear to be good bets with limited risk. Buy Goldcorp up to 45.
The key is a rich reserve base, from which it is starting to ramp up production. The Red Lake Mine in Ontario Canada, for example, is set to accelerate output from a first half 2012 rate of 218,200 ounces. Cost guidance is on track as well, with cash costs of $568 an ounce in the first half. The company has maintained a solid balance sheet by supplementing its robust cash flows from operations with targeted asset sales, such as its stake in Primero Mining Corp.
Goldcorp has had some production problems over the past year, which in turn have ratcheted up production costs. These have principally been at Red Lake, although also at the Penasquito mine in Mexico. Together, these are the company’s largest mines. Bringing down costs will depend in large part on getting them back up to speed. Goldcorp will, however, start up production at a mine in Argentina in the second half of 2013 — with potential output of 550,000 ounces at a cost of less than $200 an ounce.
Mining at the Pueblo Viejo site in the Dominican Republic is expected to yield between 68,000 and 85,000 for Goldcorp and its partner Barrick (TSX: ABX, NYSE: ABX) the rest of the year. And the Eleonore mine in Quebec is anticipated to produce 600,000 ounces of gold annually for 15 years, starting in 2014.
Looking further out, the El Moro project in Chile should bring somewhat higher cost production on stream in 2017, assuming it can reach a deal with local native Americans and resolve electricity challenges. There’s also the Nocha Buena mine in Mexico, with an estimated one million ounces of gold in the ground.
That adds up to massive potential increases in reserves and production of gold, as well as silver, copper and zinc in the coming years. How much money the company makes depends on executing its ambitious agenda and something entirely beyond its control — gold prices. But at this price for the stock, both outcomes appear to be good bets with limited risk. Buy Goldcorp up to 45.
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