March 19, 2015 Goldcorp Inc. Current Recommendation Prior Recommendation Outperform Date of Last Change 09/25/2014 Current Price (03/18/15) $18.97 Target Price $20.00 NEUTRAL (GG-NYSE) SUMMARY We are reaffirming our Neutral recommendation on Goldcorp. The company s loss widened in the fourth quarter of 2014, hurt by a hefty impairment charge. Adjusted earnings missed the Zacks Consensus Estimate. Revenues fell on lower gold pricing, and missed expectations. Goldcorp is progressing well with its development projects and remains on track to attain its long-term production targets. Moreover, it is still focused on reducing costs and remains committed to returning capital to its shareholders. However, the company faces risks associated with weak gold prices and geopolitical challenges. Moreover, declining reserves and high debt are other concerns. SUMMARY DATA 52-Week High $29.25 52-Week Low $17.11 One-Year Return (%) -25.76 Beta 0.04 Average Daily Volume (sh) 8,668,054 Shares Outstanding (mil) 814 Market Capitalization ($mil) $15,442 Short Interest Ratio (days) 1.45 Institutional Ownership (%) 58 Insider Ownership (%) N/A Annual Cash Dividend $0.60 Dividend Yield (%) 3.16 5-Yr. Historical Growth Rates Sales (%) 3.8 Earnings Per Share (%) -9.7 Dividend (%) 26.9 using TTM EPS 31.1 using 2015 Estimate 28.3 using 2016 Estimate 20.8 Zacks Rank *: Short Term 1 3 months outlook 3 - Hold * Definition / Disclosure on last page Risk Level * Above Avg., Type of Stock Large-Value Industry Mining -Gold Zacks Industry Rank * 76 out of 267 ZACKS CONSENSUS ESTIMATES Revenue Estimates (In millions of $) Q1 Q2 Q3 Q4 Year (Mar) (Jun) (Sep) (Dec) (Dec) 2013 1,015 A 889 A 929 A 1,203 A 3,687 A 2014 898 A 906 A 1,088 A 1,087 A 4,500 A 2015 1,026 E 1,123 E 1,176 E 1,208 E 4,533 E 2016 4,767 E *Note: Revenues in 2013 and 2014 do not add up to the annual figure due to one-time adjustments. Earnings Per Share Estimates (EPS is operating earnings before non-recurring items, but including employee stock options expenses) Q1 Q2 Q3 Q4 Year (Mar) (Jun) (Sep) (Dec) (Dec) 2013 $0.31 A $0.14 A $0.23 A $0.09 A $0.78 A 2014 $0.26 A $0.20 A $0.09 A $0.07 A $0.61 A 2015 $0.12 E $0.15 E $0.17 E $0.23 E $0.67 E 2016 $0.91 E *Note: EPS in 2013 and 2014 do not add up to the annual figure due to rounding-off. Projected EPS Growth - Next 5 Years % 10 2015 Zacks Investment Research, All Rights reserved. www.zacks.com 10 S. Riverside Plaza, Chicago IL 60606
OVERVIEW Headquartered in Vancouver, Canada, Goldcorp Inc. (GG) is a leading gold producer engaged in gold mining and related activities including exploration, extraction, processing and reclamation. Goldcorp has operations in Canada, the U.S., Mexico and Central and South America. Apart from gold, the company also produces copper and silver. The company s principal producing mining properties include Red Lake, Porcupine and Musselwhite gold mines in Canada; the Pueblo Viejo mine (40% interest) in the Dominican Republic; the Penasquito gold/silver/zinc/lead mine, and Los Filos and El Sauzal gold mines in Mexico; the Marlin gold/silver mine in Guatemala; and the Alumbrera gold/copper mine (37.5% interest) in Argentina. Goldcorp has significant development projects which include the Cochenour gold project in Canada; the El Morro gold/copper project (70% interest) in Chile; and the Camino Rojo gold/silver project in Mexico. Goldcorp also owns a 39.3% equity interest in Tahoe Resources Inc. that owns and operates the Escobal silver project in Guatemala. The company s proven and probable gold mineral reserves decreased 8% year over year to around 49.6 million ounces in 2014. Gold production rose 8% year over year to roughly 2.87 million in 2014. REASONS TO BUY Goldcorp is one of the world s fastest growing senior gold producers with operations throughout the Americas. The company s strategy is to provide its shareholders with superior returns from high quality assets. Its gold production is located in safe jurisdictions in the Americas, and remains 100% unhedged. Goldcorp s growth drivers lie in its vast array of development and exploration projects. It has an impressive lineup of such projects. The company saw a healthy rise in gold production in 2014 even without the contribution from the Marigold mine which was divested to Silver Standard Resources Inc. Production is expected to speed up on the back of ramp up at Pueblo Viejo and higher grades at Penasquito. Goldcorp remains optimistic about the Pueblo Viejo project, which is expected to contribute between 420,000 and 460,000 ounces of gold in 2015. Goldcorp recorded commercial gold productions at Cerro Negro in January 2015, representing a key milestone. The mine is expected to produce 425,000 to 475,000 ounces of gold in 2015 and deliver significant long-term value. The Eleonore project in Quebec is expected to start commercial production in late first-quarter 2015 and is expected to make a meaningful contribution in 2015. The company is also progressing with the development of its Cochenour project. Moreover, Goldcorp added the Borden Gold project through its recently completed acquisition Probe Mines Limited. Borden is a high-quality deposit with reported underground constrained indicated resources of 1.6 million ounces of gold. The company is looking forward to advancing exploration efforts in this project. Goldcorp is benefiting from facility expansion and has the highest leverage to spot gold prices due to its completely unhedged position. The company is actively focused on cost reduction, which should aid to its results moving ahead. Its all-in sustaining costs fell 8% year over year to $949 per ounce in 2014. Goldcorp remains committed in maximizing shareholder returns. The company, in early 2013, raised its annual dividend by 11% to $0.60 per share. It paid dividends worth $488 million in 2014 including $122 million in the fourth quarter. Equity Research GG Page 2
REASONS TO SELL Goldcorp s profitability depends on metal prices for gold, silver, copper, lead and zinc. An increase of 10% or decrease in metal prices would result in a $418 million increase or decrease in the company s after-tax net earnings. Goldcorp s policy includes not to hedge gold sales. In accordance with Goldcorp s Risk Management Policy, the company may hedge up to 50% and 30% of its by-product base metal sales volume to manage its exposure to fluctuations in base metal prices. The volatile gold pricing environment represents a headwind. Gold prices slumped to four-and-half year lows to $1,143 per ounce in November 2014 due to a strong U.S. dollar and a steady climb in the equity market. Average price in 2014 stood at $1,266.4 per ounce, a 10% drop from the average price of $1,411 per ounce in 2013. The company s average realized gold price also declined 9% year over year in 2014. Despite some occasional rises, gold prices mostly remained below the psychological level of $1,200 per ounce in the recent past. Decreasing gold reserve is another concern. Goldcorp s gold reserves fell 8% year over year in 2014 due to depletion from mining amid lower metals pricing environment. Goldcorp also has a debt-laden balance sheet. Its total debt jumped around 44% year over year to roughly $3.6 billion at the end of 2014. Goldcorp s ability to maintain or increase its production is contingent upon its ability to bring new mines into production while expanding reserves at current mines. Moreover, since most of Goldcorp s foreign operations are currently in Mexico as well as Central and Latin America, it is exposed to various levels of political and economic risks. RECENT NEWS Goldcorp Misses Earnings & Revenue Estimates in Q4 February 19, 2015 Goldcorp s fourth-quarter 2014 adjusted earnings (excluding one-time items) decreased 25.7% to $55 million or $0.07 per share from $74 million or $0.09 a share earned in the year-ago quarter. Earnings per share also missed the Zacks Consensus Estimate of $0.14. Adjusted earnings exclude one-time items including a hefty impairment charge of $2.3 billion associated with the Cerro Negro mine in Argentina. Net loss, as reported, for the quarter was $2.4 billion, or $2.94 per share compared with a net loss of $1.1 billion, or $1.34 per share in the fourth quarter of 2013. The higher net loss mainly resulted from the sizable impairment charge. For 2014, adjusted earnings came in at $498 million, or $0.61 per share, compared with $634 million, or $0.78 per share, in 2013. Goldcorp posted revenues (as adjusted) of $1,087 million in the quarter, down 9.6% year over year. Revenues also missed the Zacks Consensus Estimate of $1,115 million. Average realized gold price for the reported quarter declined 4.1% to $1,203 per ounce from $1,254 per ounce in the prior-year quarter. For 2014, Goldcorp posted adjusted revenues of $4.5 billion. Equity Research GG Page 3
Gold sales decreased 2.5% year over year to 707,900 ounces in the reported quarter, while production increased 15.9% to 890,900 ounces. All-in sustaining costs were $1,035 per gold ounce (up 27.8% year over year), while cash cost totaled $589 per ounce on a by-product basis (up 26.1%) and $669 per ounce (up 3.7%) on a co-product basis. Silver production fell 11.3% year over year to 7.9 million ounces from 8.9 million ounces in the prior-year quarter. Mining Highlights At the Penasquito mine, gold production totaled 141,100 ounces, a decrease of 0.4% year over year and an increase of 9% sequentially. The sequential increase was due to higher ore grades and higher oxide production. All-in sustaining cost was $1,472 per ounce, an increase from the year-ago quarter figure of $473 due to the timing of concentrate shipments, lower by-product credit sales and increased sustaining capital expenditure, mainly associated with the Northern Well Field project. Gold production at Los Filos dropped 30% year over year to 65,900 ounces at an all-in sustaining cost of $1,369 per ounce. However, production increased sequentially due to increased ore and solution processed through the adsorption, desorption, recovery carbon plant with the commissioning of the sixth train in Nov 2014. Gold production at El Sauzal mine totaled 900 ounces in the fourth quarter, down 95.8% year over year. Gold production at Red Lake increased 1.8% year over year to 130,300 ounces at an all-in sustaining cost of $809 per ounce. Gold production also increased from the third quarter of 2014 due to higher mill throughput and improved grades. The company reported first gold production in Oct 2014 from the Eleonore mine in Quebec, production from which totaled 18,300 ounces in the fourth quarter. Production was lower-than-expected due to ramp-up issues with the tailings filter press. At Porcupine in Ontario, gold production in the quarter was 90,400 ounces, up 14.6% year over year, at an all-in sustaining cost of $857 per ounce. Production also increased from the previous quarter due to higher grades from numerous higher-grade VAZ veins in the Hoyle Pond underground operation. At Pueblo Viejo, gold production increased 12.6% year over year to 117,900 ounces (40% basis) at an all-in sustaining cost of $630 per ounce. Gold production also increased over the prior quarter due to higher tons processed. Cerro Negro in Argentina produced 133,100 ounces of gold in the fourth quarter with commercial production declared on Jan 1, 2015. Financial Position As of Dec 31, 2014, cash and cash equivalents were $482 million, down 22.9% from $625 million as of Dec 31, 2013. Long-term debt stood at $3,442 million as of Dec 31, 2014, up from $1,510 million as of Dec 31, 2013. The company s adjusted operating cash flow was $337 million in the quarter compared with $439 million in the year-ago quarter. Dividends worth $122 million were paid in the reported quarter. Equity Research GG Page 4
Outlook Goldcorp expects an increase of about 20% in gold production in 2015 to between 3.3 and 3.6 million ounces. All-in sustaining costs are forecast to be between $875 and $950 per ounce of gold. These projections factors in the divestiture of the Wharf mine which was completed on Feb 20. Capital expenditures for 2015 are expected to be between $1.2 and $1.4 billion, including about $235 million at Cerro Negro, $215 million at Penasquito, $115 million at Eleonore and $95 million at Cochenour. Goldcorp Misses Earnings, Revenue Estimates in Q3 October 30, 2014 Goldcorp s third-quarter 2014 adjusted earnings (excluding one-time items) decreased 63.2% to $70 million or $0.09 per share from $190 million or $0.23 a share earned in the year-ago quarter. Earnings per share missed the Zacks Consensus Estimate of $0.18. Earnings were impacted by non-cash reduction in the value of low-grade stockpiles at the Penasquito mine. Adjusted earnings exclude one-time items including unrealized losses from the foreign exchange translation of deferred income tax assets and liabilities, unrealized losses on derivatives, and the impairment against the carrying amount of El Sauzal as a result of speeding up closure activities due to previously-reported pit wall instability. However, earnings include stock-based compensation impact of roughly $19 million or $0.02 per share. Net loss, as reported in the quarter, was $44 million or $0.05 per share, in contrast to net earnings of $5 million or $0.01 per share in the year ago quarter. Goldcorp posted revenues (as adjusted) of $1,088 million in the quarter, down 6.2% year over year. It missed the Zacks Consensus Estimate of $1,111 million. Average realized gold price for the reported quarter declined 5.5% to $1,266 per ounce from $1,339 per ounce in the prior-year quarter. Gold sales decreased 1.6% year over year to 641,400 ounces in the reported quarter while production increasing 2.3% to 651,700 ounces. Silver production rose 0.9% year over year to 7.8 million ounces from 7.2 million ounces in the prior-year quarter. All-in sustaining costs were $1,066 per ounce (up 7.1% year over year), while cash cost totalled $597 per ounce on a by-product basis (up 8.3%) and $682 per ounce (down 3.4%) on a co-product basis. Mining Highlights At the Penasquito mine, gold production totalled 129,500 ounces, an increase of 13.7% year over year. Production however decreased from the sequential quarter due to lower grades and recoveries due to the supplementing of fresh ore feed with ore from stockpiles. All-in sustaining cost was $1,142 per ounce, a decline from the sequential quarter due to lower gold production, higher sustaining capital and higher operating costs. Construction is ongoing at the Northern Well Field (NWF) project at the Penasquito mi with completion expected by mid-2015. Gold production at Los Filos dropped 12.7% year over year to 64,100 ounces at an all-in sustaining cost of $808 per ounce. Production increased over the sequentially prior quarter as mining activity resumed following the second-quarter suspension of mining. Equity Research GG Page 5
Gold production at El Sauzal mine totalled 6,100 ounces in the third quarter, down 71.5% year over year. Mining was suspended in Sept 2014 due to pit wall instability and minimal gold production is expected for the remainder of the year. The company has elected to speed up the closure of El Sauzal beginning in the fourth quarter of 2014. The company reported first gold production from the Eleonore mine in Quebec and ore stockpile was 244,000 tons at the end of the reported quarter. The company expects commercial production to begin by the first quarter of 2015. Gold production at Red Lake increased 2.7% year over year to 99,600 ounces at an all-in sustaining cost of $955 per ounce. Gold production increased from the second quarter of 2014 due to increased grade and tons from the High Grade Zone which followed the completion of planned de-stress activities that contributed to increased stope availability. At Porcupine in Ontario, gold production in the quarter was 74,300 ounces, down 2.2% year over year at an all-in sustaining cost of $946 per ounce. Production increased from the previous quarter due to higher tonnage and higher grades. At Pueblo Viejo, gold production increased 48.8% year over year to 112,200 ounces (40% basis) at an all-in sustaining cost of $559 per ounce. Gold production increased over the prior quarter due to higher grades. Cerro Negro in Argentina continued to ramp-up after it produced its first gold on July 25, 2014, with commercial production expected in the fourth quarter of 2014. Gold production for the quarter totalled 19,000 ounces. Financial Position As of Sep 30, 2014, cash and cash equivalents were $376 million, up 61.3% from $972 million as of Sep 30, 2013. Long-term debt stood at $2,472 million as of Sep 30, 2014, up 66.9% from $1,481 million as of Sep 30, 2013. The company s adjusted operating cash flow was $399 million in the quarter compared with $375 million in the year-ago quarter. Dividends worth $122 million were paid in the reported quarter. Project Update At the Cochenour project, the haulage drift connecting the Bruce Channel deposit to the Red Lake complex was complete. The project remains on track for its first ore from production stopes in the third quarter of 2015. At the Camino Rojo project near Penasquito in Mexico, Goldcorp plans to commence a pre-feasibility study before the end of 2014, with completion expected in early 2016. Production mining at Mariana Central is expected to commence in the first quarter of 2015. Outlook Goldcorp expects to meet its production guidance for 2014 but due to the lower-than-expected production at El Sauzal due to pit wall instability and the second-quarter stoppage at Los Filos the company now expects gold production to be at the low end of its previous guided range of 2.95 million and 3.1 million ounces. The company now expects all-in sustaining costs towards the low end of its guidance range of $950 to $1,000 per ounce for 2014. Equity Research GG Page 6
Goldcorp reiterated its capital spending outlook and expects it to be in the range of $2.3 billion and $2.4 billion for 2014. The company also remains well-positioned for sustained growth in free cash flow in 2015 and beyond. VALUATION Currently, shares of Goldcorp are trading at 28.3X our 2015 EPS estimate of $0.67. The company s current trailing 12-month earnings multiple is 31.1X, compared with the 54.9X industry average and 18.1X for the S&P 500. Over the last five years, shares have traded in the range of 16.6X to 56.1X trailing 12-month earnings. Our long-term Neutral recommendation suggests that it will perform in line with the market. Our price target of $20 is based on 29.9x our 2015 earnings estimate. Key Indicators F1 F2 Est. 5-Yr EPS Gr% P/CF 5-Yr High 5-Yr Low Goldcorp Inc. (GG) 28.3 20.8 10.0 12.0 31.1 56.1 16.6 Industry Average 42.9 27.3 7.4 12.0 54.9 122.8 16.9 S&P 500 16.5 15.4 10.7 14.5 18.1 18.4 12.0 AngloGold Ashanti Ltd. (AU) 15.0 7.3 7.0 80.5 112.5 3.6 Newmont Mining Corp. (NEM) 18.6 19.9 6.2 20.3 27.3 9.9 Kinross Gold Corporation (KGC) 98.0 21.9-8.6 2.5 20.4 82.8 7.6 Gold Fields Ltd (GFI) 23.2 15.9 1.1 4.0 31.8 211.5 7.2 TTM is trailing 12 months; F1 is 2015 and F2 is 2016, CF is operating cash flow P/B Last Qtr. P/B 5-Yr High P/B 5-Yr Low ROE D/E Last Qtr. Div Yield Last Qtr. EV/EBITDA Goldcorp Inc. (GG) 1.0 2.2 0.8 2.6 0.2 2.7-9.9 Industry Average 5.7 5.7 5.7-93.5-1.5 0.5-4.5 S&P 500 6.2 9.8 3.2 25.4 2.0 Equity Research GG Page 7
Earnings Surprise and Estimate Revision History Equity Research GG Page 8
DISCLOSURES & DEFINITIONS The analysts contributing to this report do not hold any shares of GG. The EPS and revenue forecasts are the Zacks Consensus estimates. Additionally, the analysts contributing to this report certify that the views expressed herein accurately reflect the analysts personal views as to the subject securities and issuers. Zacks certifies that no part of the analysts compensation was, is, or will be, directly or indirectly, related to the specific recommendation or views expressed by the analyst in the report. Additional information on the securities mentioned in this report is available upon request. This report is based on data obtained from sources we believe to be reliable, but is not guaranteed as to accuracy and does not purport to be complete. Because of individual objectives, the report should not be construed as advice designed to meet the particular investment needs of any investor. Any opinions expressed herein are subject to change. This report is not to be construed as an offer or the solicitation of an offer to buy or sell the securities herein mentioned. Zacks or its officers, employees or customers may have a position long or short in the securities mentioned and buy or sell the securities from time to time. Zacks uses the following rating system for the securities it covers. Outperform- Zacks expects that the subject company will outperform the broader U.S. equity market over the next six to twelve months. Neutral- Zacks expects that the company will perform in line with the broader U.S. equity market over the next six to twelve months. Underperform- Zacks expects the company will under perform the broader U.S. Equity market over the next six to twelve months. The current distribution of Zacks Ratings is as follows on the 1130 companies covered: Outperform - 15.0%, Neutral - 75.2%, Underperform 8.9%. Data is as of midnight on the business day immediately prior to this publication. Our recommendation for each stock is closely linked to the Zacks Rank, which results from a proprietary quantitative model using trends in earnings estimate revisions. This model is proven most effective for judging the timeliness of a stock over the next 1 to 3 months. The model assigns each stock a rank from 1 through 5. Zacks Rank 1 = Strong Buy. Zacks Rank 2 = Buy. Zacks Rank 3 = Hold. Zacks Rank 4 = Sell. Zacks Rank 5 = Strong Sell. We also provide a Zacks Industry Rank for each company which provides an idea of the near-term attractiveness of a company s industry group. We have 264 industry groups in total. Thus, the Zacks Industry Rank is a number between 1 and 264. In terms of investment attractiveness, the higher the rank the better. Historically, the top half of the industries has outperformed the general market. In determining Risk Level, we rely on a proprietary quantitative model that divides the entire universe of stocks into five groups, based on each stock s historical price volatility. The first group has stocks with the lowest values and are deemed Low Risk, while the 5 th group has the highest values and are designated High Risk. Designations of Below-Average Risk, Average Risk, and Above-Average Risk correspond to the second, third, and fourth groups of stocks, respectively. Equity Research GG Page 9