With bullion prices blooming, it's looking like gold is the new black.
The streetTRACKS Gold Trust (NYSE: GLD) ETF has become a fashionable investment, as have shares of senior producers like Barrick Gold (NYSE: ABX) and Compania de Minas Buenaventura (NYSE: BVN). Also benefiting from the yellow metal's mighty rise is mid-tier miner Goldcorp (NYSE: GG). The company just reported its quarterly results, so it's as good a time as any to see what color the opportunity is here.
Much like Yamana Gold (NYSE: AUY), Goldcorp has changed so much that a comparison to last year's results is not terribly meaningful. Goldcorp's transformative acquisition of Glamis Gold drastically altered the company's production profile, but it also ballooned the share count. That helps explain why, even with higher net income in absolute terms, per-share earnings unceremoniously tanked.
It's probably more useful to look at some of Goldcorp's properties for a better handle on operations.
At Alumbrera, the giant gold and copper mine operated by Xstrata (OTCBB: XSRAF.PK), production was on point, but sales were off due to a late concentrate shipment. Even with the slippage, profits from the mine still accounted for 45% of earnings from continuing operations. This thing is a beast, and with copper credits bringing the cost of gold production to negative $1,000/ounce, it becomes clear why Goldcorp's companywide cash costs are so low compared to other gold miners. To borrow from the old Clinton campaign: It's the by-products, stupid.
Goldcorp's second-largest property is Red Lake. This Canadian mine complex has obscenely high head grades, which help make Red Lake one of the company's lowest-cost projects. Unfortunately, Red Lake also faced a stormy quarter -- literally. Intermittent power outages meant less ore was milled than last year, and earnings were lower, despite a 10% higher realized gold price.
Between Alumbrera and Red Lake, that's nearly 75% of the earnings picture, so clearly it wasn't a great quarter. Still, there's something to be said for Goldcorp's growth outlook. The company reaffirmed its production guidance, and has four big projects in the pipeline.
People looking for a pure gold upside might find the by-product taint at Alumbrera and Penasquito unpalatable, but there's serious growth in gold and silver production coming in the years ahead. That said, I am somewhat sympathetic to the view that Goldcorp looks a bit premium-priced, considering that a good chunk of its net asset value derives from base metals.
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