What Are Goldcorp’s Valuation Drivers in 2017 and Beyond?



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 (earnings before interest, tax, depreciation, and amortization) multiple of 12.0x.

Barrick Gold (ABX), Newmont Mining (NEM), and Yamana Gold (AUY) are trading at EV-to-EBITDA multiples of 7.7x, 9.4x, and 7.5x, respectively. Kinross Gold (KGC) has a lower multiple of 5.5x.

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While Goldcorp’s historical premium valuation has been due to its lower leverage and quality assets in safe jurisdictions, that premium is waning. Following the arrival of its new CEO, the company’s expectations were reset, coming in lower than what the market was expecting. Last year, operational issues at GG’s existing mines also hurt its stock.

An upside on the horizon?

The bright side to this story is that Goldcorp may have reached the lowest point in its operational performance, which means that 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.

If GG’s management follows through on the guidance it’s provided, 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 gold’s performance. Investors can invest in GLD to get broad-based exposure to gold.


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