The Top 5 Reasons to Leap Into Goldcorp
Jan 10th 2013 5:03PM
Updated May 17th 2013 6:05PM
With this week's much-anticipated release of revised forward guidance, I believe that Goldcorp has just cemented its position -- and by a very wide margin I might add -- as the most attractive stock among the major gold producers. For a quick review of the more salient developments to existing and prospective shareholders, let's ponder five pressing reasons why an investment in Goldcorp's shares presents such an alluring opportunity at this time.
1. The stock has just been substantially de-risked
Goldcorp's stock exhibited considerable resilience this week in the face of a sharp downward revision to 2013 production guidance and some rather heavy cost escalation for some of the miner's key construction projects. When I recommended Goldcorp at the No. 3 position among my top 10 gold stocks for 2013, I suggested that investors may wish to await this week's update in case the news (much of which I was anticipating) triggered some additional selling pressure. But after this high-profile gold stock took the entirety of this week's news in stride, I believe we can now declare this downtrodden stock one of the lowest-risk investment vehicles in the gold industry. The company has just closed the books on one of the most challenging years in its history, and with this latest update investors now know just where they stand as a result. The stock's customary growth premium over its peers has been effectively wiped clean in the process, leaving the risk/reward equation strongly tilted in the favor of meaningful upside.
2. The gold industry's prettiest growth outlook remains intact
While lingering water-related challenges at the Peñasquito mine in Mexico will limit the company's 2013 production growth outlook, the longer-term picture remains solidly intact for a monumental 70% expansion to reach between 4.0 million and 4.2 million ounces of gold production by 2017. Moreover, even as significant cost pressures continue impact the entire industry, Goldcorp provided encouraging guidance (under the circumstances) for average by-product costs to remain beneath $500 per ounce over the five-year period.
3. The sweetest words ever spoken
Given the circumstances that have permitted a dastardly bear market in gold mining stocks to coincide with this historic ongoing bull market for gold itself, the following words from Goldcorp CEO Chuck Jeannes are absolute music to this Fool's ears. And everything I've observed from this company over the trailing decade confirms that these key considerations lie at the very heart of Goldcorp's corporate philosophy. Jeannes stated:
We will remain disciplined stewards of shareholder capital by focusing on high quality, high return projects and returning capital to shareholders ... We remain committed to continuous improvements in the way in which we assess and account for the risks inherent in our business. We believe this has resulted in a carefully considered, high quality and realistic five-year growth plan that demonstrates the unique investment proposition that Goldcorp shares continue to represent.
4. All that production growth plus dividend growth to boot!
Following an 11% increase to the annual dividend announced this week, Goldcorp shares presently offer a 1.68% yield that I consider extremely attractive given the company's aggressive growth outlook. Rivals Barrick Gold , Newmont Mining , and Gold Fields each offer superior yields -- led by Gold Fields with a yield of 4.16% -- but none of those major producers can lay claim to growth prospects coming anywhere in the vicinity of Goldcorp's monster growth pipeline.
5. Exhibiting first-rate leadership at every turn
One crucial characteristic of this company that has remained in clear view -- whether the miner is blasting its way through hard rocks or experiencing some hard knocks -- is the exemplary caliber of management. Even at the close of a year that was chock-full of challenges, I have no qualms hailing Goldcorp as the best-run gold miner in the business. That excellence in leadership is exemplified, in my view, by the company's recent decision to begin reporting a new all-in sustaining cash cost metric alongside the customary figures for coproduct and by-product cash costs of production. Combining "by-product cash costs, sustaining capital, corporate general & administrative expenses and exploration expense," this all-in figure is likely to approach $1,100 per ounce of gold.
Goldcorp's voluntary publication of this all-in cost metric represents a valiant step in the direction of enhanced transparency for the industry at large, promoting greater awareness of the real underlying cost structure of gold production among the investing public. Aside from the occasional anecdote regarding prevailing all-in costs from select CEOs including AngloGold Ashanti's Mark Cutifani and IAMGOLD's Stephen Letwin -- which have periodically informed my views on the rising long-term floor beneath gold prices -- Gold Fields had previously stood as the only major miner in my purview that regularly posted this more transparent means of reporting production costs. I have applauded Gold Fields for leading the charge, and I now take this opportunity to similarly applaud Goldcorp for providing this positive example of what it means to operate with uncommon transparency to its shareholders.
The article The Top 5 Reasons to Leap Into Goldcorp originally appeared on Fool.com.Christopher Barker owns shares of Goldcorp (USA) and IAMGOLD (USA). The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.
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