Top Picks 2017: Goldcorp

01/06/2017 6:00 am EST


Adrian Day

Chairman and CEO, Adrian Day Asset Management

My Top Pick for growth-oriented investors in 2017 is the fourth-largest gold mining company in the world, explains resource specialist Adrian Day, editor of Global Analyst.

Goldcorp (GG) has underperformed over the past year. This is partly because other major companies, such as Barrick (ABX) and Newmont Mining (NEM), had had their own problems in prior years, and so came off a lower base. But it also reflects some changes happening at Goldcorp itself.

A new CEO David Garofalo got off to a rocky start when some comments were exaggerated in the media as indicating he wanted to diversify away from gold and away from the safe jurisdictions in the Americas that had given Goldcorp one of the best political-risk profiles in the industry.

Moreover, he has shifted the company’s focus to free cash flow rather than production growth; this follows three major new mines built in the 2014-2015 period. 

Although the company has a strong pipeline, there is no growth from that pipeline for perhaps three years or more.  So the market focused on the lack of growth rather than the improvements in cash costs and profitability.

With solid cash flow, cash (after some asset sales), and a newly renewed line of credit, Goldcorp has plenty of firepower ($6 billion plus) for a major acquisition. If it made sense, the market would reward the company.

So Goldcorp has a strong political risk profile, some world-class mines (including the new Eleonore), a reasonable balance sheet, and good cost profile. The underperformance is unwarranted, and we expect Goldcorp to catch up over the year ahead.

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Editor's Note: Adrian Day selected Royal Gold (RGLD) as his Top Pick for last year; the stock has since risen 73%. He now says, "RGLD is a gold royalty company; these companies offer exposure to the gold market without the risks of mining companies. 

"Royal has gone a long way towards resolving its dependence on a single asset, and a troubled one at that, the Mt. Milligan copper/gold mine in British Columbia. The risk -- and why the stock was selling at such a discount -- is now a thing of the past.  Royal remains a very strong buy."

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