Premium multiple to peers
Goldcorp (GG) has consistently traded at a higher multiple than its peers (GDXJ) (GDX). Currently, Goldcorp has a forward EV-to-EBITDA[1. enterprise value to earnings before interest, tax, depreciation, and amortization] multiple of 10.4x, which is higher than its peers.
Its premium to the average peer multiple, however, has contracted significantly since the start of 2016. At the beginning of the year, the premium was 35%. This figure has now contracted to 25%. Barrick Gold (ABX), Newmont Mining (NEM), and Yamana Gold (AUY) are trading at EV-to-EBITDA multiples of 6.9x, 8.4x, and 6.8x, respectively. Kinross Gold (KGC) has a lower multiple of 4.6x.
While Goldcorp’s (GG) historical premium valuation was due to its lower leverage and quality assets in safe jurisdictions, that premium is waning. Following the arrival of its new CEO, the expectations were reset and were lower than what the market was expecting. Last year, the operational issues at its existing mines also hurt its stock.
A look on the bright side
The bright side to this story is that Goldcorp may have reached the lowest point in its operational performance, which means it could see better prospects ahead. As we’ve seen previously in this series, Goldcorp’s management has significantly improved its production, reserve growth, and cost outlook for the next few years.
Goldcorp has also been going through a series of changes to its management and organization. Going forward, there could be a rerating of its stock. The execution of the new management’s goals could go a long way toward a valuation upside.
Goldcorp still has one of the best long-term organic growth production profiles, with a good execution track record from its management.
The SPDR Gold Trust ETF (GLD) mirrors the performance of gold prices. Investors can invest in GLD to get broad-based exposure to gold.