I’m Upping the Stakes on Goldcorp
01/14/2011 3:00 pm EST
On January 13, Goldcorp (NYSE: GG) announced production and cost guidance for 2011.
Let’s just say that my investment thesis for Goldcorp—that this is a low-cost producer of gold with rising production—remains intact.
In 2010, the company said, gold production grew to a record 2.52 million ounces. For 2011, Goldcorp forecast production of 2.7 million ounces. Over the next five years, the company projected that gold production will increase by 60%.
The company hasn’t finished final accounting for 2010 operating costs (Goldcorp reports year-end results on February 24), but Goldcorp expects that total cash costs will be about $285 an ounce (including revenue from byproducts such as copper from mining gold), or less than $450 an ounce on a co-product basis (which allocates cost on a metal-by-metal basis.) Cash costs, the company projects, will continue a downward trend over the next five years.
After a cash payment of $765 million as part of its acquisition of Andean Resources, Goldcorp finished the year with $530 million in cash. Cash flow for 2011 will be approximately $2.5 billion. Goldcorp projects capital expenditures for 2011 at $1.8 billion, with plans for the construction of six new mines over the next five years.
I think Goldcorp should be a core part of any inflation-hedge, gold portfolio. (The stock is a member of both my Jubak’s Picks 12-18 month portfolio and my Jubak Picks 50 long-term portfolio.) I’d use the recent pullback in gold and gold stocks—Goldcorp is down almost 10% from December 6 to January 13—as an opportunity to build positions.
As of January 14, I’m raising my target price to $55 a share by October 2011 from my previous target of $51 by December 2010. The shares peaked in December around $46.
Full disclosure: I don’t own shares of any of the companies mentioned in this post in my personal portfolio. The mutual fund I manage, Jubak Global Equity Fund (JUBAX), may or may not now own positions in any stock mentioned in this post. The fund did own shares of Goldcorp as of the end of November. For a full list of the stocks in the fund as of the end of November, see the fund’s portfolio here. I’ll have the fund’s portfolio as of the end of December posted in a few days.