Should You Buy Goldcorp Inc. or Yamana Gold Inc.?

Here’s what investors need to know about Goldcorp Inc. (TSX:G)(NYSE:GG) and Yamana Gold Inc. (TSX:YRI)(NYSE:AUY).

| More on:
The Motley Fool

Gold stocks are off to a great start in 2016, and investors are wondering if it is finally time to add some gold exposure to their portfolios.

Let’s take a look at Goldcorp Inc. (TSX:G)(NYSE:GG) and Yamana Gold Inc. (TSX:YRI)(NYSE:AUY) to see if one is a better bet.

Goldcorp

Goldcorp used to be the go-to name in the space for investors who wanted a top-quality mining stock, but the company lost some fans in recent years.

Why?

Heavy capital outlays amid a plummeting gold price didn’t go down well with the investment community, and pundits thought the company had lost its golden touch.

But it may turn out that management had the timing just right.

Goldcorp put two new mines into commercial production in 2015. Those facilities are ramping up to full output, and that should drive production higher, while reducing all-in sustaining costs (AISC).

The company’s AISC in Q3 2015 was US$848 per ounce, down from US$1,066 per ounce in the previous year.

Goldcorp delivered free cash flow of US$243 million in the third quarter, which is a solid result given the challenging market conditions. With capital expenditures falling as the new projects move from development to full production, Goldcorp should kick off even more free cash flow in the coming quarters.

The company’s guidance for 2015 output was 3.3-3.6 million gold ounces. Management’s comments in the Q3 report indicated the final number would be close to the high end of the target.

Goldcorp finished Q3 2015 with US$2.5 billion in long-term debt and US$330 million in cash and short-term investments. The company has a market capitalization of about US$10.8 billion.

Yamana

Yamana’s stock has really taken a hit over the past four years, falling from $20 per share in late 2012 to the current price of about $3.

Management is working hard to get the house in order, and the recent rally in gold is bringing contrarian investors back into the name.

The company delivered Q3 2015 AISC of US$841, which is right in line with its larger peers. Production has been a concern and third-quarter output was about in line with the same period in 2014. Output should improve in the coming years if the miner can get its key projects built.

Yamana is planning to focus its capital on core assets and has put the non-core mines in a separate company called Brio Gold. The original plan was to monetize the non-core assets through a sale, but management now intends to hold the assets until it can extract a higher price. At the moment, that decision looks like a smart one, but investors should keep an eye on the debt load.

Net debt is about US$1.7 billion and the company has a market capitalization of just US$2 billion, so there is some balance sheet risk that has to be addressed. Yamana’s 2016 gold output is expected to be 1.2-1.3 million ounces.

Which should you buy?

Yamana might get a bigger bounce if gold continues to rally, but it is also a high-risk play and things could get ugly again very quickly if gold reverses course.

Goldcorp’s balance sheet is in much better shape and production growth should be steady in the coming years. If you want the safer way to play a rebound in gold, Goldcorp is the better bet.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Andrew Walker owns shares of Goldcorp.

More on Metals and Mining Stocks

construction workers talk on the job site
Metals and Mining Stocks

2 No-Brainer Mining Stocks to Buy With $200 Right Now

You can buy these top Canadian mining stocks with just a $200 investment right now to start your long-term wealth…

Read more »

Concept of multiple streams of income
Stocks for Beginners

Lock Up This 9.2% Dividend Yield From a Top Royalty Stock

Royalty stocks have a strong advantage when it comes to creating passive income for investors. But this one has the…

Read more »

Safety helmets and gloves hang from a rack on a mining site.
Metals and Mining Stocks

Is First Quantum Minerals Stock a Good Buy Right Now?

First Quantum is a TSX stock that trades 61% below all-time highs. However, the mining stock still trades at a…

Read more »

nugget gold
Metals and Mining Stocks

The Best Gold Stock to Invest $1,000 in Right Now

Here are two of the best Canadian gold stocks that can yield some eye-popping returns in the long run.

Read more »

nugget gold
Stocks for Beginners

The Ultimate Mining Stock to Buy With $1,000 Right Now

This mining stock just saw a drop, but don't let that keep you from diving in. This miner is due…

Read more »

A plant grows from coins.
Metals and Mining Stocks

Canadian Mining Stocks: Buy, Sell, or Hold?

Explore 2025’s top Canadian mining stocks – gold, uranium, and base metals offer big potential in a dynamic, commodity-driven market.

Read more »

farmer holds box of leafy greens
Metals and Mining Stocks

3 Reasons to Buy Nutrien Stock Like There’s No Tomorrow

Nutrien stock has lost 34% of its value just this year alone and looks incredibly cheap today. Yet, secular trends…

Read more »

Canada national flag waving in wind on clear day
Tech Stocks

Trump Trade: Canadian Stocks to Watch

With Trump returning to the presidency, there are some sectors that could boom in Canada, and others to watch. But…

Read more »