This year has been a roller-coaster ride for Goldcorp Inc. (TSX:G)(NYSE:GG) shareholders. After joining the broad equity sell-off at the beginning of this year, Goldcorp (along with spot gold) quickly rebounded due to a global decline in real interest rates and outperformed the broader indices by a wide margin.
However, most of the gains have since been returned as real interest rates have surged following the U.S. elections on the prospect of inflationary conditions under a Trump presidency. As of writing, Goldcorp’s share price is roughly at the same level it was at last year, reflecting the sell-off in spot gold.
FY 2015 earnings disappoint; guidance lacklustre
Goldcorp’s first earnings report for 2016 was a rather mediocre one. As per its filings, the company reported revenues of $4.38 billion and a net loss of $4.16 billion for FY 2015. Although revenues came in 27% higher than 2014, the 92% increase in net losses came because of a large impairment charge of $4.90 billion vs. $2.99 billion in 2014 due to a sustained decline in metal prices (as evident by the 18% drop in overall reserve base to 40.7 million ounces) and changes to mine life cycles estimates.
The reaction to the earnings report was mixed. Most analysts shunned the large impairment charges and $501 million, or 24%, uptick in production in costs from 2014. Moreover, 2016-2018 guidance came in below estimates with annual output targets of 2.8-3.1 million ounces–a decline of 16% from FY 2015 due to slower than expected ramp-up at Eleonore, setbacks at Cochenour, and lower ore grades from Penasquito and Red Lake.
However, some analysts saw the conservative guidance as a prudent measure, while the company undergoes a transition under new CEO David Garofalo, who was taking over the reins following incumbent CEO Chuck Jeannes’s retirement in April 2016.
Goldcorp takes out Kaminak; operational metrics improve in Q3 2016
In May 2016, Goldcorp closed its acquisition of Kaminak Gold Corporation in a $520 million all-stock offering. This strategic buyout will increase Goldcorp’s exposure to Canadian assets through Kaminak’s flagship “Coffee” open-pit mine located in the Yukon. According to Goldcorp, the Coffee mine has completed its feasibility studies and will be producing by 2019/2020 at roughly US $550/ounce all-in sustaining costs (AISC).
On the earnings front, Goldcorp’s Q3 2016 report received a warmer reception than its FY 2015’s. Although gold production was down 22% year over year, net income came in at $59 million thanks to the company’s cost-savings initiatives, which had brought down the AISC to $812/ounce and put it on track to meet management’s guidance of $850-925/ounce for 2016.
Moreover, the Coffee acquisition added 1.6 million ounces to Goldcorp’s reserves, while projects such as Penasquito, Camino Rojo, Musselwhite, and Porcupine’s Dome project have either been approved, commenced, or are in various phases of study.
Final thoughts
Goldcorp is a company in the midst of a transition. Although precious metals prices have come down recently due to the increases in real interest rates and the U.S. dollar, Goldcorp presents an interesting case for the contrarian investor on the strength of its improving operational metrics and strong pipeline.
