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3 Charts to Explain Goldcorp’s Recovery

Goldcorp (NYSE: GG  ) has done well in the stock market in recent months, with its stock rising over 27% since the beginning of the year. The recovery of Goldcorp is partly due to the rise in the price of gold, but this isn't the only driving force. Here are three charts to show the other factors that are contributing to the company's rally in recent months.  

Expected rise in production
This year, Goldcorp plans to increase its gold output by 10% compared to 2013; its annual guidance comes to nearly 3 million ounces of gold. This means that the recovery of gold will have a compound effect on the company's revenue due to the expected rise in production. Not all gold companies will present an increase in production; Barrick Gold (NYSE: ABX  ) , for example, is projected to record a 13% drop this year, as indicated in the chart below. 

Source of Data: Goldcorp  and Barrick's  websites. 

Due to these developments, Goldcorp's output is projected to be nearly half of Barrick Gold's production quota in 2014. Back in 2013, it was only a third. 

Moreover, Goldcorp is also trying to further expand its operations. It recently tried (and failed) to purchase Osisko Mining. This attempt wasn't successful, but it shows that the company's management attempts to further increase Goldcorp's operations. 

In the coming months, additional projects such as Cerro Negro in Argentina will start to produce and will keep augmenting its production. Further, Goldcorp resumed its Los Filos mine after it was able to complete a new land occupancy agreement. This turn of events won't result in a rise in this year's output, but it could increase its production volume by next year. 

In terms of uncertainty in its operations, the company faced some challenges with its Peñasquito mine. This included a delay in opening 25 wells. The company expects construction to start in the middle of this year, and the project's completion is projected by mid-2015. 

Stable profit margins
The current price of gold is still low compared to last year. Nonetheless, Goldcorp was able to maintain its operating profitability between 25% and 35% in the past several quarters. This was possible due to its ongoing drop in all-in sustaining costs. During the first quarter, the company's all-in sustaining costs declined by nearly 26% compared to last year and reached $840 per ounce of gold. Moreover, the company plans to keep cutting down its production costs by selling off non-core assets and improving its operations. 

The chart below shows the changes in its operating profitability (after adjusting for goodwill provisions) during the past several quarters. 

Source of data from Google Finance

According to chart above, the drop in the price of gold didn't actually drag down Goldcorp's profitability in the past couple of quarters. 

This steady profit margin also translates to stable dividend payments. Goldcorp's annual dividend yield was 2.17%. Other gold producers such as Yamana Gold (NYSE: AUY  ) and Barrick Gold offer slightly lower dividend yields of 1.8% and 1.1%, respectively. 

Low debt burden
One of the main differences between Goldcorp and Barrick Gold is the level of debt. The chart below demonstrates this gap by showing these companies' debt-to-equity ratios. 

Source of data from Google Finance

As you can see, the debt burden that Goldcorp has on its balance sheet is the lowest. Further, Yamana's recent purchase of Osisko Mining with Agnico Eagle Mines is likely to increase its debt-to-equity ratio well above Goldcorp's ratio. Goldcorp's small debt burden keeps its financial uncertainty low and thus allows its stock to keep recovering. 

Goldcorp is making great strides by increasing its output, reducing costs, and keeping its debt low. These factors, along with the recent recovery of gold, are likely to keep the company's stock growing. 

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Lior Cohen

Lior has been a contributor for the Fool since 2012. His main interests are in commodities, and energy and materials companies.You can follow him on Twitter to stay up to date with his industry analysis. @tradingnrg

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Related Tickers

8/28/2015 4:03 PM
GG $13.96 Up +0.28 +2.05%
Goldcorp, Inc. (US… CAPS Rating: ***
ABX $7.13 Up +0.29 +4.24%
Barrick Gold Corp. CAPS Rating: ***
AUY $1.96 Up +0.07 +3.70%
Yamana Gold, Inc.… CAPS Rating: ***