Most Popular
1. It’s a New Macro, the Gold Market Knows It, But Dead Men Walking Do Not (yet)- Gary_Tanashian
2.Stock Market Presidential Election Cycle Seasonal Trend Analysis - Nadeem_Walayat
3. Bitcoin S&P Pattern - Nadeem_Walayat
4.Nvidia Blow Off Top - Flying High like the Phoenix too Close to the Sun - Nadeem_Walayat
4.U.S. financial market’s “Weimar phase” impact to your fiat and digital assets - Raymond_Matison
5. How to Profit from the Global Warming ClImate Change Mega Death Trend - Part1 - Nadeem_Walayat
7.Bitcoin Gravy Train Trend Forecast 2024 - - Nadeem_Walayat
8.The Bond Trade and Interest Rates - Nadeem_Walayat
9.It’s Easy to Scream Stocks Bubble! - Stephen_McBride
10.Fed’s Next Intertest Rate Move might not align with popular consensus - Richard_Mills
Last 7 days
Trump Stocks and Crypto Mania 2025 Incoming as Bitcoin Breaks Above $100k - 8th Dec 24
Gold Price Multiple Confirmations - Are You Ready? - 8th Dec 24
Gold Price Monster Upleg Lives - 8th Dec 24
Stock & Crypto Markets Going into December 2024 - 2nd Dec 24
US Presidential Election Year Stock Market Seasonal Trend - 29th Nov 24
Who controls the past controls the future: who controls the present controls the past - 29th Nov 24
Gold After Trump Wins - 29th Nov 24
The AI Stocks, Housing, Inflation and Bitcoin Crypto Mega-trends - 27th Nov 24
Gold Price Ahead of the Thanksgiving Weekend - 27th Nov 24
Bitcoin Gravy Train Trend Forecast to June 2025 - 24th Nov 24
Stocks, Bitcoin and Crypto Markets Breaking Bad on Donald Trump Pump - 21st Nov 24
Gold Price To Re-Test $2,700 - 21st Nov 24
Stock Market Sentiment Speaks: This Is My Strong Warning To You - 21st Nov 24
Financial Crisis 2025 - This is Going to Shock People! - 21st Nov 24
Dubai Deluge - AI Tech Stocks Earnings Correction Opportunities - 18th Nov 24
Why President Trump Has NO Real Power - Deep State Military Industrial Complex - 8th Nov 24
Social Grant Increases and Serge Belamant Amid South Africa's New Political Landscape - 8th Nov 24
Is Forex Worth It? - 8th Nov 24
Nvidia Numero Uno in Count Down to President Donald Pump Election Victory - 5th Nov 24
Trump or Harris - Who Wins US Presidential Election 2024 Forecast Prediction - 5th Nov 24
Stock Market Brief in Count Down to US Election Result 2024 - 3rd Nov 24
Gold Stocks’ Winter Rally 2024 - 3rd Nov 24
Why Countdown to U.S. Recession is Underway - 3rd Nov 24
Stock Market Trend Forecast to Jan 2025 - 2nd Nov 24
President Donald PUMP Forecast to Win US Presidential Election 2024 - 1st Nov 24

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

Three Large Gold Miners That Are Still Inexpensive

Commodities / Gold and Silver Stocks 2016 Sep 08, 2016 - 05:53 AM GMT

By: The_Gold_Report

Commodities

Money manager Adrian Day profiles three large miners in his portfolio that have had success solving problems yet are still inexpensive.

Goldcorp Inc. (G:TSX; GG:NYSE 16.02) has had a tough year. After reporting a year-end loss of $4.1 billion due to writing off and down various projects—a supposed clearing of the decks for the new CEO David Garofalo—the recent results were not so positive. Production was down year-on-year, due to shortfalls and problems at its two largest mines, Peñasquito and Cerro Negro.


There are some positives, however. Éléonore, which had had some early production setbacks, improved performance. And the pipeline remains strong, with numerous studies expected over the next 12 months; Goldcorp recently acquired Kaminak and its high-grade Coffee project. The company is forecasting flat production for the next three years, so the hurdle it has set itself is not so high, and we are likely to see the company focus on its existing projects rather than new acquisitions.

Hold off on new buys?
Costs have been cut, including major cuts at the head office. With $360 million in cash, and $2.8 billion in debt, a priority is to de-lever, another reason not to expect new acquisitions.

Overall, despite some recent mine problems, Goldcorp has good assets in good countries. It trades at a 4% premium to its peers on an NAV basis, though is inexpensive on other metrics. If it can get all its main operations to run smoothly for a few quarters, we could see Goldcorp recover nicely. Goldcorp is a buy at this level, the best buy among the major miners.

Problem solved, buy ahead?
Royal Gold Inc. (RGLD:NASDAQ; RGL:TSX 77.94) has finally resolved its major problem and erstwhile drag on its stock. Centerra Gold Inc. (CG:TSX; CADGF:OTCPK) has acquired troubled Thompson Creek, including the Mt. Milligan mine, a stream on which represents about 30% of RGLD's reserves. RGLD has agreed to restructure the stream, decreasing the gold and increasing exposure to the copper; the economics are essentially unchanged.

RGLD wants to reduce its reliance on Mt. Milligan, so we may see a major new stream (or royalty). Even if the economics are not overly attractive, the market would respond well (as it has with other companies buying major, long-life if low return streams), particularly since it would diversify RGLD's asset base and revenue sources.

Despite the strong recovery—a triple this year—RGLD is still trading at a 20% discount to its royalty peers. We are holding, and would look for opportunities to buy on price weakness.

Back from the brink
Freeport-McMoRan Inc. (FCX:NYSE 10.48) continues to make strides towards repairing its balance sheet, by cutting costs, reducing capex for its oil unit, with ongoing equity sales, and asset sales. Most recently it announced agreement to sell its interest in the giant Tenke Fungurume in the DRC for $2.65 billion.

With about $19 billion in debt, the company has a target of $10 billion. After one more equity raise and the completion of pending asset sales, if copper stays where it is, CEO Richard Adkerson says there is no need for more copper sales. Recent losses have been due to special items and carrying costs of its oil & gas assets; operational performance has generally been strong. If the company sells an interest in its Indonesia operations or its oil & gas unit, this would be "a strategic decision rather than a financial imperative," said CEO Adkerson. The fact that he brought this up suggests (to me) that such moves are under consideration. We think the market would respond well to either of these possibilities.

More major sales ahead?
It was the acquisition of two oil companies that brought Freeport to the situation where it is today. As for Grasberg, it is a fabulous, long-life mine, but operating conditions in Indonesia are worsening—Newmont Mining Corp. (NEM:NYSE) recently exited the country and is not alone—and there is major capex ahead. Freeport has obtained a short-term license allowing it to export ore. More importantly, it is currently operating without a long-term contract. Freeport is reluctant to keep making heavy capital expenditures without a contract, though stopping the capital spend would have major ramifications. A long-term solution would be to bring in a major partner (Rio?) who would assume much of the capital spend—saving Freeport's balance sheet—while Freeport kept a smaller part of the operation. This won't happen, however, before a new agreement with the country is in place.

Even after such a transaction or transactions, Freeport would remain a solid copper company with world-class operations. It is a great buy for patient long-term investors, particularly on weakness. This is a good price.

Adrian Day, London-born and a graduate of the London School of Economics, heads the money management firm Adrian Day Asset Management, where he manages discretionary accounts in both global and resource areas. Day is also sub-adviser to the EuroPacific Gold Fund (EPGFX). His latest book is "Investing in Resources: How to Profit from the Outsized Potential and Avoid the Risks."

Want to read more Gold Report interviews like this? Sign up for our free e-newsletter, and you'll learn when new articles have been published. To see recent interviews with industry analysts and commentators, visit our Streetwise Interviews page.

Disclosure:
1) Adrian Day: I, or members of my immediate household or family, own shares of the following companies mentioned in this article: None. I personally am, or members of my immediate household or family are, paid by the following companies mentioned in this article: None. My company has a financial relationship with the following companies mentioned in this article: None. Funds controlled by Adrian Day Asset Management hold shares of the following companies mentioned in this article: Goldcorp Inc., Royal Gold Inc. and Freeport McMoRan Inc. I determined which companies would be included in this article based on my research and understanding of the sector.
2) The following companies mentioned in this article are sponsors of Streetwise Reports: None. The companies mentioned in this article were not involved in any aspect of the article preparation. Streetwise Reports does not accept stock in exchange for its services. The information provided above is for informational purposes only and is not a recommendation to buy or sell any security.
3) Statements and opinions expressed are the opinions of the author and not of Streetwise Reports or its officers. The author is wholly responsible for the validity of the statements. The author was not paid by Streetwise Reports for this article. Streetwise Reports was not paid by the author to publish or syndicate this article.
4) This article does not constitute investment advice. Each reader is encouraged to consult with his or her individual financial professional and any action a reader takes as a result of information presented here is his or her own responsibility. By opening this page, each reader accepts and agrees to Streetwise Reports' terms of use and full legal disclaimer. This article is not a solicitation for investment. Streetwise Reports does not render general or specific investment advice and the information on Streetwise Reports should not be considered a recommendation to buy or sell any security. Streetwise Reports does not endorse or recommend the business, products, services or securities of any company mentioned on Streetwise Reports.
5) From time to time, Streetwise Reports LLC and its directors, officers, employees or members of their families, as well as persons interviewed for articles and interviews on the site, may have a long or short position in securities mentioned. Directors, officers, employees or members of their families are prohibited from making purchases and/or sales of those securities in the open market or otherwise during the up-to-four-week interval from the time of the interview/article until after it publishes.


© 2005-2022 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in