Goldcorp (GG) outperformed its peers Barrick Gold (GOLD -1.02%) and Newmont Mining (NEM 2.36%) this year, but investors will find little solace in this fact, as the stock has lost 40% since January. However, when gold prices rebound, leaders will benefit first. I think that Goldcorp will remain a leader among big gold miners in 2014. Here's why.
New projects coming
Unlike Barrick Gold, which struggles with its gargantuan Pascua-Lama project, and Newmont Mining, whose Conga project has been stalled since almost 2011, Goldcorp expects to start production at several mines in 2014.
Argentinean Cerro Negro, which will produce 525,000 ounces of gold once it reaches full production levels, is expected to deliver first gold in mid-2014. The project was expected to start production by the end of this year, but was delayed because of lower gold prices and inflation in Argentina.
Goldcorp previously estimated Cerro Negro capital costs at $1.35 billion, but then raised the estimate to the range of $1.6 billion to $1.8 billion. This is a minuscule rise in costs if we compare this project to Barrick's Pascua-Lama. When Barrick started Pascua-Lama, it thought that it would need no more than $3 billion to finish the project. However, the costs climbed up to $8.5 billion, and Barrick decided to put Pascua-Lama on hold.
In addition to Cerro Negro, Goldcorp expects first gold from its Canadian Eleonore mine late in 2014. The first production stage will bring 300,000 ounces of gold annually. The second stage will start after 2017 and will deliver additional 300,000 ounces.
Goldcorp expects to produce 2.6 million – 2.7 million ounces this year. Cerro Negro and Eleonore will not have a big impact on production in 2014. However, they will increase Goldcorp's production in 2015. What's important, these projects are very close to the finish, and will not demand big capital spending. As the gold price continues to put pressure on miners' cash flows, this is a significant factor.
Strong balance sheet
Goldcorp finished the third quarter with almost $1 billion of cash on hand and $2 billion of undrawn credit facility. Although capital expenditures outpaced cash flow from operations in 2013, Goldcorp remained on the conservative side.
This helped Goldcorp maintain its dividend, which currently yields 2.8%. Goldcorp expects to return 28% of operating cash flow to shareholders in 2014. Given the company's liquidity and the low level of debt, the dividend looks sustainable.
Goldcorp is concentrated on finishing its existing projects and is reluctant to spend money on new mines despite depressed asset prices. This strategy will prove itself if the gold price environment gets worse before it gets better.
Goldcorp aims to lower its all-in sustaining cash costs to below $1,000 per ounce. Goldcorp managed to achieve this target in the third quarter, when it finished with all-in sustaining costs of $992 per ounce. As gold prices stay near the $1,200 level, it is important to push the costs down as much as possible, and Goldcorp is doing just that.
Bottom line
Gold prices continue to pressure miners, and Goldcorp is no exception. However, with a strong balance sheet and new mines starting production soon, Goldcorp is in a good position to grow should gold prices tick up a little. In addition, while other gold miners are slashing their dividends, Goldcorp's dividend looks sustainable.
All in all, Goldcorp is a relatively low-risk bet on gold as we go into 2014.
