Today, a timely question about a senior Canadian mining stock. Goldcorp is one of the world’s largest gold producers, and a member of Pat McKeough’s Inner Circle wants to know whether to hold or sell the stock as both gold prices and the stock have declined. Pat examines the company’s gold properties—and a joint venture in copper with Teck Resources—its production outlook and its financial situation. The company recently reduced its dividend to conserve cash, but it is in the process of developing several new properties to expand its output. For a recent report on a Canadian gold stock that we recommend, read IAMGold focused purely on gold—and aims to mine more of it.
Q: Pat: What is your assessment of Goldcorp? We have a small position, and the stock is down since our purchase in 2013. Should we wait for prices to climb or sell at a loss? A:Goldcorp (symbol G on Toronto; www.goldcorp.com) is a senior gold producer that also mines silver and base metals.
Goldcorp’s mines (wholly owned and jointly held) include Red Lake and two others in Canada; Penasquito and two more in Mexico; Marlin in Guatemala; Wharf in the U.S.; and Pueblo Viejo in the Dominican Republic. In addition, the company is developing eight other projects in four countries.
In 2014, Goldcorp produced 2.78 million ounces of gold and 36.8 million ounces of silver. It expects to produce 3.3 million to 3.6 million ounces of gold this year.
The company recently shored up its balance sheet by selling its 26% stake in Tahoe Resources for $768 million U.S. And to conserve cash, it just cut its monthly dividend by 60%, to $0.02 U.S. from $0.05. The shares now yield 1.9%.
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Mining stocks: Reserves of combined copper projects between Goldcorp and Teck due to last 32 years
Goldcorp and Teck Resources (symbol TCK.B on Toronto and a recommendation of The Successful Investor) recently agreed to merge their copper projects in Chile into a new 50/50 joint venture by the end of 2015.
The new venture will hold Teck’s proposed Relincho mine and Goldcorp’s El Morro project. The two properties are just 40 kilometres apart, so there are plenty of opportunities to cut overlapping costs. For example, the partners plan to transport ore from El Morro to Relincho for processing.
It would cost $3.5 billion U.S. to build these mines and related infrastructure (Goldcorp’s share is $1.75 billion U.S.). However, their combined reserves would last 32 years.
Goldcorp shares are down along with most gold stocks, and they will need improved gold prices to move higher. However, the company’s production outlook is positive: higher output will come from the development of the Eleonore mine in Canada, Cerro Negro in Argentina, Camino Rojo in Mexico and the full ramp-up of Penasquito and Pueblo Viejo.
In addition, Goldcorp mainly focuses on politically low-risk jurisdictions, such as Canada and Mexico.
Inner Circle recommendation: HOLD if you want to own a major gold producer
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