Gold prices have taken it on the chin, but don't be scared to shop the space.
Goldcorp (GG) saw a weak second quarter, with lower gold production and higher-than-estimated costs. The company has advised the third quarter will also be soft, while forecasting a strong fourth quarter.
The company's grand 20/20/20 goal (for 20% higher production, 20% higher reserves, and 20% lower costs) was restated, but the company does not appear to be making great strides towards the goals.
Out of Favor Gold Is Poised to Stage an Upside Reversal7 Consumer Stocks Goldman Sachs Thinks Have 25% Average UpsideExecution is the key. Two major new mines have been experiencing more difficult ramp-up periods than expected-that's Cerro Negro and Eleonore-though both are improving, and these two mines give the company potential to go some way towards their production and cost goals.
The balance sheet, with $2.4 billion of net debt, is not as strong as many of its peers though the company's valuation is below its peers. We are holding, but not energetically buying more. However, the current price-down over two dollars from mid-June-is overdone, and probably a good price for a trade here.
Osisko Gold Royalties (OR) reported good results, particularly a record production quarter at Canadian Malartic, its cornerstone asset. The bad news was the announcement of a blockade at Lydian's Amulsar project in Armenia which pushes back production to the middle of next year (at the earliest).
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The balance sheet remains strong. Although cash is down to $189 million, after new investments of $108 million in the quarter (and two of which carry future payment commitments), debt is also down after a $52 million repayment to $450 million.
Osisko also has a large portfolio of junior companies valued around $450 million, and it is expected that Pretium will buy back its royalty, giving Osisko $119 million before year end, so the balance sheet remains, and will remain, strong.
Osisko trades at a meaningful discount on several metrics to other large royalty companies, only partly justified (smaller, and higher-risk in exploration), also now at a discount to net asset value. Take advantage of the sharp price decline, Osisko is a strong buy here.
By: Adrian Day, editor of The Global Analyst. Via MoneyShow.