While gold bullion has soared 82% over the last five years, gold stocks have floundered with the S&P/TSX Global Gold Index falling about 15%. Why the difference? Bad management, cost inflation and overpriced acquisitions have hurt a number of companies and only now is the sector finally realizing the error of its ways.
The mistakes have made much of the sector cheap, including one company that’s actually been a bright spot among the yellow metal miners. Vancouver-based Goldcorp is a favourite among analysts, with the majority saying it’s at least a buy. The company has avoided much of the issues that have derailed its peers, and while its stock price did take a hit over the summer after it cut its production guidance, it’s still in good shape.
In February 14 note, BMO Capital Markets, which has an outperform rating on the stock, pointed out that its currently trading at 1.1 times net present value, which is below the senior producer average of 1.3 times NPV. Chris Beer, a portfolio manager at RBC, says that about 80% of their new production over the next 12 to 18 months will come from low cost and long life mines, which will increase free cash flow. “They can then evaluate projects, buy back shares or increase dividends,” he says.
Another plus is its all-in cost—the metric takes into account the total cost gold production—of $1,212 an ounce. That’s lower than other miners, which means it’s making more cash off the commodity than many of its competitors.
While the stock price has been down about 27% over the last 12 months, there’s a good chance it will rebound this year. On February 14 it announced that Q4 profit was about $500 million, up from about $400 million the year before. That is, of course, good news and could help move it from its $36 share price to BMO’s $55 target.
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