The slow recovery of gold prices has put some wind in the sails of gold producer Goldcorp (NYSE:GG) as its stock has soared by over 22% year to date. Besides the recent gold rally, are the company's fundamentals still solid in terms of production? And how does Goldcorp measure up to other gold producers such as Barrick Gold (NYSE:GOLD) and Newmont Mining (NYSE:NEM)?
The current price of gold is around $1,300, which is nearly 9% higher than it was at the end of 2013, though still well below its level during the first half of 2013. Due to the plunge in the price of gold during 2013, gold companies such as Goldcorp and Barrick had to revise down their own price estimates: Newmont Mining and Barrick revised down their assumptions on the price of gold to $1,300 per ounce; Goldcorp to a more conservative $1,200 per ounce.
As a result, Newmont Mining, Barrick, and Goldcorp recorded a high impairment of mining interests and goodwill provisions during the second quarter of 2013. Newmont Mining's impairment provision was $2.3 billion; Barrick's impairment provision was roughly $8.7 billion; Goldcorp's impairment costs were $2.5 billion. Keep in mind, however, these provisions didn't have a cash-related effect on earnings. Looking forward, if the price of gold continues to rally and perhaps even passes the $1,400 mark, this might encourage them to revise up their assumptions, and their valuations would subsequently improve.
Production on the rise
Goldcorp's gold production rose by 11.6% during 2013 and reached over 2.6 million ounces of gold. For 2014, the company plans to keep increasing its production to range between 3 million and 3.15 million ounces of gold -- 15% higher than in 2013. This rise is mainly due to the Éléonore and Cerro Negro mines, which will start to produce this year, and the rise in production in the Peñasquito and Pueblo Viejo mines. Despite the ongoing rise in production, Goldcorp continues to slowly reduce its capital expenditure: For 2014, the company's capex is expected to reach around $2.4 billion -- back in 2013 the company's guidance for capex was $2.8 billion.
In comparison, Newmont Mining also plans to slightly increase its production by roughly 2%. Conversely, Barrick plans to slash its production from 7.17 million ounces to 6.25 million ounces -- a 13% drop.
Lower production costs
Last year, Goldcorp's all-in sustaining costs declined to reach an average of $1,031 per ounce. For 2014, the company expects another decrease in its production costs to an average of $975 per ounce -- 5.4% lower than in 2013. This could have some positive effect on the company's profitability. Newmont Mining also expects its production costs will decline by 2.6%. On the other hand, Barrick isn't going to do any better in 2014, and its all-in sustaining costs are expected to rise by 3.8%.
The recent recovery of the price of gold isn't the only factor worth considering when investing in a gold producer. Goldcorp plans to increase its production and cut down its production costs in 2014, which could further increase the company's earnings. Finally, Goldcorp is doing well compared to its peers, including Barrick and Newmont Mining, and is likely to continue to do so in 2014.