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How Is Goldcorp Doing in the Weak Commodity Price Environment?

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Goldcorp’s relative performance

Goldcorp’s (GG) stock has fallen by 27% year-to-date. Meanwhile, the SPDR Gold Trust (GLD), which tracks the spot price of gold, has fallen by 4.3% and the VanEck Vectors Gold Miners ETF (GDX) has fallen by 28%.

Newmont Mining (NEM) is the only senior gold miner that has significantly outperformed its peers in the sector. It has fallen by 13.5% compared to the 38% and 42% negative returns YTD from Barrick Gold (ABX) and Kinross Gold (KGC), respectively.

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For the most part of 2015, Goldcorp has underperformed its closest peers, primarily due to its worse-than-expected 2014 results, as well as ramp-up risks associated with its growth projects in 2015. Going forward, the company’s strong production profile and ramp-up of its key projects could lead to a re-rating of the stock with respect to its peers.

Barrick’s relative underperformance is mainly due to its high debt profile. In the absence of acquisitions or mine extensions, the likelihood of declining production after 2017 is also weighing down the stock.

Newmont’s outperformance is mainly due to the strengthening of its balance sheet as a result of non-core asset sales as well as unit cost reduction.

Gold prices

The impending Fed rate hike is also keeping a lid on gold prices. While the recent concerns regarding China’s slowdown and currency weakness resulted in some gold buying, which led the prices to rise to a five-week high, the strength in the dollar and positive US data is dampening things for gold. In the medium to long term, miners are bracing themselves for a lower gold price environment ahead. The rate hikes will make it harder for gold as an investment to compete with interest-yielding investments.

For more on this topic, visit Market Realist’s Is This the Right Time to Buy Gold.

In the next part of this series, we’ll see if Goldcorp will be able to ride out this lower gold price environment.

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