Update Goldcorp (GG)

Goldcorp (GG) reported first quarter 2012 earnings of 50 cents a share on April 25 after the close of New York markets. That was 5 cents a share below the Wall Street consensus. Revenue climbed 10.9% to $1.35 billion, below Wall Street expectations for revenue of $1.48 billion.

Do I need to tell you that the stock has tumbled on the news? As of 2:40 p.m. New York time on April 26 Goldcorp is down 6.5% to $38.39. (Goldcorp is a member of my Jubak’s Picks 12-18 month http://jubakpicks.com/the-jubak-picks/ and Jubak Picks 50 long-term portfolios http://jubakpicks.com/jubak-picks-50/  )

The problem seems to be focused on the company’s Red Lake mine. Read more

Dollar Ben Bernanke was very good for gold yesterday

Stocks liked Fed chairman Ben Bernanke’s speech yesterday that emphasized the Federal Reserve’s doubts about the strength of the recovery in the job market. But the gold market liked it even more. The SPDR Gold Shares climbed to $164.40 yesterday from $161.53 on Friday, March 23. That was a 1.8% gain for the gold bullion ETF.

Bernanke chose a glass-half-empty approach to recent job gains in his speech to the National Association of Business Economists. The rapid drop in the unemployment rate in the last six months to 8.3% from 9.1%, he said, may reflect a one-time bounce reversing the job cuts of 2008 and 2009. “To the extent that this reversal has been completed,” Bernanke said, “further significant improvements in the unemployment rate will probably require a more rapid expansion from consumers and businesses, a process that can be supported by continued accommodative policies.”

In other words the Fed isn’t even vaguely thinking of rescinding its promise to keep interest rates at current extraordinarily low levels through the end of 2014. And the possibility of another round of quantitative easing remains on the table.

The stock market, accurately, heard the sounds of printing presses churning out dollar bills in Bernanke’s remarks. Stocks rallied because increases in the money supply support faster economic growth (in the short-run anyway and who worries about the long-run on Wall Street right now?) and because lower interest rates make stocks look even better against bonds. (The S&P 500 stocks currently yield 1.86%. That’s more than the 1.02% yield on the 5-year Treasury note and not far behind the 2.18% yield on the 10-year Treasury.)

So too did the gold market where the sound of printing presses argues for a falling dollar (good for gold) and an eventual increase in inflation (good for gold).

Right now it looks like the SPDR Gold Shares ended their 10% or so correction from their February 28 intraday high at $174 to a bottom at $158 and have, with yesterday’s move broken through resistance to start a new rally.

Potentially anyway. Read more

Buy Yamana Gold (AUY)

I’d use today’s drop in gold and gold mining stocks on strength in the dollar to buy Yamana Gold (AUY). As of 1:30 New York time shares of Yamana Gold were down 4.01%.

I think the strength in the dollar is temporary due, first, to this morning’s announcement by the European Central Bank that European banks had borrowed 530 billion euros under the central bank’s new three-year loan facility. That means the central bank has added 1 trillion euros to its balance sheet since December. The central bank’s balance sheet now stands at a record 2.74 trillion. The currency markets, rightly, feel that this expansion is inflationary down the road.

The dollar’s strength is due, second, to disappointment in this morning’s testimony by Federal Reserve chief Ben Bernanke that the U.S. central bank wasn’t thinking about another round of quantitative easing that would pump more dollars into the U.S. money supply.

On a day when the European Central Bank adds 530 billion euros to its money supply, the Fed seems like a paragon of strong money.

Of course, that’s not really true. The Fed remains committed to 0% interest rates through 2014 and the U.S. government’s fiscal deficit continues to build up debt—and add to the money supply.

Before today’s drop, the U.S. Dollar Index was sinking toward a test of resistance at its 200-day moving average and gold mining stock (represented by the Market Vectors Gold Miners ETF (GDX)) had moved above its 200-day moving average.

In other words, with the dollar falling, gold and gold mining stocks were moving to new highs. I think that pattern will resume after a brief interruption. Read more

Update Goldcorp (GG)

On January 13, Goldcorp (GG) announced production and cost guidance for 2011.

Let’s just say that my investment thesis for Goldcorp—that this is a low-cost producer of gold with rising production—remains intact.

In 2010, the company said, gold production grew to a record 2.52 million ounces. For 2011 Goldcorp forecast production of 2.7 million ounces. Over the net five years, the company projected that gold production will increase by 60%.

The company hasn’t finished final accounting for 2010 operating costs (Goldcorp reports year-end results on February 24), but Goldcorp expects that total cash costs will be about $285 an ounce (including revenue from by-products such as copper from mining gold) or less than $450 an ounce on a co-product basis (which allocates cost on a metal by metal basis.) Cash-costs, the company projects, will continue a downward trend over the next five years.

After a cash payment of $765 million as part of its acquisition of Andean Resources, Goldcorp finished the year with $530 million in cash. Cash flow for 2011 will be approximately $2.5 billion. Goldcorp projects capital expenditures for 2011 at $1.8 billion with plans for the construction of six new mines over the next five years.

I think Goldcorp should be a core part of any inflation-hedge, gold portfolio. Read more

Update Goldcorp (GG)

What you think of Goldcorp’s (GG) $3.4 billion bid for Andean Resources will depend on how impressed you are with Goldcorp’s track record valuing potential acquisition candidates.

There’s no doubt that Andean Resources’ (ANDPF) Cerro Negro project in Argentina is an attractive gold asset. The project isn’t scheduled to go into production until late 2012, but indicated reserves now come to 2.1 million ounces of gold and 20.6 million ounces of silver. Production costs project out as relatively low, a key criterion for any Goldcorp acquisition, at $60 an ounce after silver revenue.  Capital spending to get the mine up to production targets are a reasonable $275 million to $300 million, according to Goldcorp.

But, and it’s a huge BUT, the price that Goldcorp is paying is high—unless there’s a lot more gold in the ground here than the current indicated reserves show. Read more