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Is It Safe? Goldcorp Could Beat Gold

Goldcorp's ample cash and aggressive mining plans could help boost profits even if gold prices slip.
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TSC Ratings provides exclusive stock, ETF and mutual fund ratings and commentary based on award-winning, proprietary tools. Its "safety first" approach to investing aims to reduce risk while seeking solid outperformance on a total return basis.

Gold prices

are expected to remain stagnant for the next year as investors mull the direction of the


. But



shares could rise 18%.

Consumer confidence surged in April as more Americans expressed optimism about the job market, the Conference Board said. Still, home prices and business activity have continued to shrink, and unemployment is expected to rise in the world's richest nations, according to the Organization for Economic Cooperation and Development. The swine flu pandemic has further complicated the matter, dragging

gold prices

to less than $900 an ounce.

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The conflicting data has made it hard for gold investors to predict whether prices will rise. Gold, which hit a record $1,032.70 last year, is viewed as a safe haven in times of economic uncertainty and market volatility. Gold futures for April 2010 are trading for only $7 more than contracts for this month.

Perhaps these investors should consider buying shares of mining firm Goldcorp. The company's stock closed at $27.78 Tuesday and could rise to $33 in the next 12 months, according to Ratings. The "buy"-rated company's ample cash and aggressive mining plans could help it increase profits even if

gold prices


Goldcorp expects to mine 3.5 million ounces of gold a year by 2013, 52% more than last year. The company aims to generate $1 billion of cash a year during that time, which would easily fund its exploration plans. The firm has some of the industry's lowest extraction costs, producing 2.32 million ounces of gold for $305 an ounce last year.

Low exploration costs help boost the company's projected cash margin, the difference between gold prices and the amount of cash spent on mining. If gold prices stay around $900, Goldcorp expects a cash margin of $500, which is more than those of rivals

Kinross Gold



Newmont Mining



AngloGold Ashanti



Barrick Gold



Gold Fields



Gold prices typically rise in periods of inflation. However, deflation would probably cause Goldcorp's expenses to fall. Either situation would help the company maintain a substantial margin.

The swine flu pandemic could create problems for Goldcorp's Mexican operations. In a worst-case scenario, the company might have to close vulnerable mines, such as those at its Los Filos site, which is 143 miles south of Mexico City. A call to Vancouver-based Goldcorp wasn't immediately returned.

Shares of Goldcorp have fallen 12% this year while gold prices have risen 1.3% to $893.57. The stock has a price-to-book ratio of 1.4, making it a better buy than its competitors, whose prices are five times their book values.

Next week, Goldcorp is expected to report per-share earnings that fell 43% in the first quarter from a year earlier. Analysts expect the company to rebound later in the year and boost annual earnings by 3.6%.

Kevin Baker became the senior financial analyst for TSC Ratings upon the August 2006 acquisition of Weiss Ratings by, covering mutual funds. He joined the Weiss Group in 1997 as a banking and brokerage analyst. In 1999, he created the Weiss Group's first ratings to gauge the level of risk in U.S. equities. Baker received a B.S. degree in management from Rensselaer Polytechnic Institute and an M.B.A. with a finance specialization from Nova Southeastern University.