Pat McKeough recently replied to a member of his Inner Circle who is looking to add Goldcorp to his portfolio. Like most gold stocks, the company’s price is down but the outlook for its long-term production is positive, says Pat.
Q: Hi Pat: I would like to add a gold stock to my portfolio and was considering Goldcorp. What is your view on this stock? Thank you so much.
A: GOLDCORP (symbol G on Toronto; www.goldcorp.com) is a Canadian-based gold miner. The company produces gold, silver and base metals. Its mines include Red Lake and three others in Canada (Porcupine, Musselwhite and Eleonore); Penasquito and Los Filos in Mexico; Marlin in Guatemala; the Cerro Negro and Alumbrera (37.5% interest) in Argentina; and Pueblo Viejo (40%) in the Dominican Republic. As well, Goldcorp has five projects in the development stage.
In 2015, the company produced 3.5 million ounces of gold, up 20.6% from 2.9 million ounces in 2014. The increase mostly came from the start-up of the Cerro Negro gold/silver mine in January 2015 and the Eleonore gold mine in April 2015.
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In the three months ended December 31, 2015, Goldcorp’s revenue rose 28.4%. That’s a jump to $1.07 billion from $835.0 million, a year earlier. Cash flow rose 30.5%, to $338.0 million, or $0.41 a share, from $259.0 million, or $0.32 a share.
The company also bolstered its cash by selling its 26% stake in Tahoe Resources in June 2015 for $998 million.
To further conserve cash, it will cut its monthly dividend by 60% with the April 2016 payment, to $0.02 U.S. from $0.05 U.S. The shares now yield 0.5%.
Goldcorp’s production will fall to between 2.8 million and 3.1 million ounces in 2016. That’s largely because the company will cut back on capital spending to conserve cash while it waits for gold prices to improve.
The company’s share price is down, along with most gold stocks. It will need improved gold prices to move higher. But the long-term production outlook for Goldcorp is positive. In addition, the company focuses predominantly on politically low-risk jurisdictions such as Canada and Mexico.
Goldcorp is okay to hold if you want to own a major gold producer.
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