SA Seabridge Gold Ordinary Shares (Canada)

We have retained our Neutral recommendation on gold miner Goldcorp Inc. (GG). We remain on the sidelines factoring in the higher cost outlook for 2013.

Why Maintained?

Goldcorp’s revenues and adjusted earnings for fourth-quarter 2012, posted on Feb 14, missed the Zacks Consensus Estimates. Revenues fell roughly 5% year over year on lower gold sales.

Goldcorp is an unhedged producer of gold and as such, it is well positioned to gain from increase in gold prices. It enjoys a leading position in the industry and aims to attain 70% production growth by 2017. Moreover, Goldcorp is one of the lowest-cost gold producers and has a strong balance sheet.

Goldcorp also has a number of projects at hand, which are expected to help it to achieve its long-term growth objectives. The company holds a 40% interest in the Pueblo Viejo mine while Barrick Gold (ABX) holds the remaining stake. Pueblo Viejo is expected to deliver roughly 10% production gain this year and is slated to come into full capacity by the second half of 2013.

Goldcorp expects production for 2013 in the range of 2.55 million and 2.80 million ounces of gold and anticipates production to speed up in the second half of the year based on the ramp up at Pueblo Viejo and higher grades at the Penasquito mine.

However, Goldcorp faces geopolitical risks along with risks arising out of volatility in prices of metals. Moreover, it is exposed to cost pressures as well as certain short-term challenges across its Red Lake and Penasquito mines. The Penasquito mine still faces some water supply issues.

Goldcorp is also seeing cost pressures across its Canadian and Mexican mines. The company expects cash costs to rise in 2013 on a year-over-year basis due to industry-wide cost inflation and the impacts of lower grades and by-product production at Penasquito. For 2013, the company estimates all-in sustaining cash costs of $1,000 to $1,100 per ounce, up from $874 per ounce in 2012.

Goldcorp currently carries a short-term (1 to 3 months) Zacks Rank #3 (Hold).

Other Stocks to Consider

Other companies in the gold mining industry having a favorable Zacks Rank are Sandstorm Gold Ltd. (SAND) and Seabridge Gold, Inc. (SA). Both carry a Zacks Rank #2 (Buy).

 
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