Gold Miners: Goldcorp and Agnico-Eagle

04/07/2015 9:00 am EST

Focus: STOCKS

Gavin Graham

Chief Strategy Officer, INTEGRIS Pension Management Ltd

Since peaking at $1,850 in September 2011, gold has entered a bear market and seen its price fall 40%, recalls Gavin Graham, contributing editor to Internet Wealth Builder.

Gold mining stocks have done much worse than the metal itself as—unlike physical gold—there are no Indian and Chinese buyers.

Some of the concerns that investors had over gold miners are fading as the fall in the price of oil helps their costs. Also companies have cut back head count, reduced drilling programs, and avoided making dilutive acquisitions.

With reasonable dividends, which will grow if the gold rises, and increasing physical demand from China, India, and central banks elsewhere, gold miners should recover from their under performance against the metal over the last few years.

Goldcorp (TSX: G, NY: GG)

Goldcorp reported record fourth-quarter gold production of 890,800 oz. at all-in sustaining costs of $1,035 per oz. That compared to 768,900 oz. in the same quarter in 2013.

During the quarter, Goldcorp took a $2.3 billion net write-down on its Cerro Negro mine in Argentina to reflect reduced exploration potential and the challenges of operating in that country.

For the full 2014 year, Goldcorp produced an 11% increase to achieve record production of 2.87 million oz. at an all-in sustaining cost of $949 per oz., down 6%.

The company forecast an increase in production to between 3.3-3.6 million oz. in 2015 at an all-in sustaining cost per ounce of between $875 and $950 and a decrease in capital expenditure to $1.2-$1.4 billion.

In January, Goldcorp announced the acquisition of Ontario-based Probe Mining for $526 million and sold the Wharf mine in South Dakota for $105 million.

Goldcorp remains a Buy as the largest gold producer, with increasing production, mines in stable American jurisdictions and a sustainable cost base below $1,000 per oz.

Agnico-Eagle (TSX:AEM, NY: AEM)

Agnico-Eagle reported record fourth-quarter gold production of 387,538 oz. at all-in sustaining costs of $954 per oz. That compared to 322,443 oz. in the same period of 2013.

Adjusted operating cash flow was $152.2 million, up from $135.8 million, due to higher gold production from the acquisition of the Malartic mine in Quebec through the takeover of Osisko Mining in 2014.

For the 2014 fiscal year, Agnico-Eagle produced a 30% increase to achieve record production of 1.429 million oz. at an all-in sustaining cost of $954 per oz. That was well up from 1.099 million oz. in 2013.

With the acquisition of Osisko, reserves were 20 million oz. at the end of 2014 against 16.9 million oz. at year-end 2013. Production for 2015 is forecast to increase to 1.6 million oz. at an all-in sustaining cost of $880-$900 per oz.

Agnico-Eagle sold its 9.7% holding in Probe Mining to Goldcorp in January and used the proceeds to reduce debt by $30 million.

Agnico-Eagle remains a Buy for its increasing production, sustainable cost base below $1,000 per oz., and mines in stable jurisdictions in Europe and North America.

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