Goldcorp: A "Star" in Gold

03/02/2017 7:00 am EST


Jack Adamo

Editor, Jack Adamo's Insiders Plus

Our star this week is Goldcorp (GG); full-year income from company-owned mines jumped 39%. Pre-tax income surged from a $4.9 billion loss last year to a $369 million profit, notes Jack Adamo, editor of Insiders Plus.

The big swing was due to a reversal of impairment charges. Write-offs can be reversed if gold prices rise to a point where the mining properties could again be expected to produce the income that justified the price the company paid for them.

International Financial Reporting Standards don't recognize the reinstated value in the income statement, they just readjust the asset value on the balance sheet.

In any case, results were excellent. The 39% increase in full-year mining income is probably the best way to judge the company's performance. Earnings were helped by a 9.7% decrease in administrative expenses, and hurt somewhat by restructuring costs.

A big increase in income tax hurt the bottom line, so net EPS came out with a profit of 19¢ per share for the year, compared to a loss of $5.03 last year. More than half of the profits came in Q4.

Comprehensive Income for the year was 25¢ per share, primarily because it includes gains on securities "held for sale," but still on the balance sheet. The company did not use any buybacks to increase EPS.

For 2017 gold production is expected to be 2.5 million ounces (+/- 5%). All-in sustaining costs are expected to be approximately $850 per ounce, as the company continues to realize savings from its $250 million target in annual sustainable efficiencies (that is, cost cutting).

The company's five year growth outlook is focused on growing gold production by 20% to 3 million ounces, reducing AISC by 20% to $700 per ounce and growing gold reserves by 20% to 50 million ounces.

I'm not a fan of this kind of artificial goal setting, but a lot of businesses do it. Whether they get there and how they get there is the bottom line.

But so far, new Goldcorp management has done a good job turning around fortunes in what has been a rough few years for the industry. Goldcorp Inc. is a buy at current prices.

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