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Can Goldcorp Surprise the Market Positively in 1Q16?

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Upside to guidance

Goldcorp (GG) is likely taking the joining of its new CEO as an opportunity to reset investors’ expectations.

Investors should note that in Goldcorp’s 4Q15, the company downgraded its production guidance for three years going forward. The guidance excluded several organic projects, which could provide upsides.

Goldcorp’s peers (GDX) are also trying to increase their production levels. While Agnico Eagle Mines (AEM), Goldcorp, and Newmont Mining (NEM) have stable production profiles, Kinross Gold (KGC) and AngloGold Ashanti (AU) could have problems replacing their reserves in the long term.

There are various ways to invest in gold, such as physically purchasing gold, investing directly in gold miners, and investing in gold ETFs. The gold-backed SPDR Gold Shares ETF (GLD), for example, is a major ETF for investors looking for exposure to gold.

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Focus on organic projects

Goldcorp is progressing on several project studies in 2016. Its focus will be on making an investment decision on its Pyrite Leach Plant, which is expected by mid-2016.

A feasibility study of the company’s Musselwhite Materials Handling project, which has the potential to expand and extend the underground life at its Musselwhite mine in Ontario, is expected to be completed by mid-2016.

During 2015, the Hoyle Deep project focused on various factors so that the full commissioning and handover to the operations team could start in 1Q16.

Net debt and capital expenditure

Goldcorp’s net debt is expected to be more or less constant at $2.4 billion at the end of 1Q16. The company’s capital expenditure is on the decline as its mines are ramping up.

New mines have lower cost profiles, which should drive significant free cash flow along with higher gold prices. The company can use this excess cash for reserve replacement through organic or inorganic means.

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