While gold prices are falling, gold miners’ stocks are falling at a faster pace. Gold prices are down 20% year-to-date. The shares of the biggest miner by market capitalization, Goldcorp Inc. (USA) (NYSE:GG), are down 29% year-to-date. The latest World Gold Council quarterly report has shown that gold demand was down 13% in the first quarter.
Commodity prices tend to overreact to demand changes. When demand slows, prices fall fast, and vice versa. This environment is tough for gold miners, but at one point, their shares will get so attractive that they would stop falling. Let’s see if such a moment is close for Goldcorp’s shares.
Goldcorp Inc. (USA) (NYSE:GG) recently reported its first-quarter earnings. The company reported earnings of $0.31 per share, while analysts were expecting earnings of $0.39 per share. Goldcorp’s revenue was down 16% in comparison with the first quarter of 2012. The company produced 17% more gold than in the first quarter of 2012. Thus, production increased while revenue decreased due to the fall in gold prices. Average realized gold price was $1622 per ounce in the first quarter of 2013 compared to $1707 a year earlier. In the second quarter, the average realized gold price would be significantly lower. That caused analysts to lower their second-quarter earnings expectations by 42% in just 90 days.
Goldcorp Inc. (USA) (NYSE:GG)’s two biggest competitors, Barrick Gold Corporation (USA) (NYSE:ABX) and Newmont Mining Corp (NYSE:NEM), also saw a decline in the second-quarter earnings estimates. Estimates for Barrick’s second-quarter earnings have fallen 37%, while estimates for Newmont’s second-quarter earnings have shed 44%. If gold prices continue to fall, these estimates would be revised even lower. Gold price is the single most important variable for a gold miner, although Goldcorp also produces silver, copper, lead, and zinc.
Two main factors to consider
In this tough environment, two things are most important since Goldcorp Inc. (USA) (NYSE:GG) cannot control gold prices. These things are liquidity and costs. With low costs, the company could tolerate lower gold prices. Liquidity would step into the game if the gold prices are lower than costs, and the company would need money to get through difficult times.
Goldcorp Inc. (USA) (NYSE:GG) reported all-in sustaining costs of $1135 per ounce in the first quarter of 2013. Barrick Gold Corporation (USA) (NYSE:ABX) reported all-in sustaining cost of $900 per ounce. However, the company gave cost guidance in a range of $950 to $1050 for the full year 2013. Newmont Mining Corp (NYSE:NEM) reported all-in sustaining costs of $1086 per ounce. As we can see, Goldcorp’s costs were higher than those of the competition. On its earnings call, Goldcorp Inc. (USA) (NYSE:GG) explained that the elevated costs were temporary. The company expects costs to be higher this year due to planned low-grade cycles in Penasquito and Alumbrera mines.