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Missed Copperpig's Earnings



March 27, 2008 – Comments (0) | RELATED TICKERS: GG

Somehow I missed Goldcorp's earnings last month.  Goldcorp is one of the overpriced pigs I follow.  I started following it because of the joint ownership in the Alumbrera mine with Northern Orion and Xstrata.  I looked at NO in depth and I did not understand why it was going down when it appeared undervalued to me.  So I decided to contrast it's valuation to another company to help me to see if I'd missed something.  At the end of contrasting the two companies it seemed to me that NO was trading at about 5-10c on the dollar relative to Goldcorp.  So, I've followed copper piggy ever since.

It just so happens that in 2006 when I first looked closely at Goldcorp something like 60% of its earnings were coming its 3/8th ownership of Alumbrera.  NO had a 1/8th ownership.  NO had a market cap around 1/4 billion and Goldcorp was over $20 billion. So, with 60% of earnings from copper, well, copper piggy is fitting.

There is grossly in equitable valuation of gold mines compared to base metals, which makes no sense.  Ultimately mines leave you with a hole in the ground and the metals sold, so you'd think people would price in a depreciation expectation.  Or they replace reserves with new exploration properties that require huge investment to build another mine, so you'd thing there'd be a contingency expectation built into the price.  But, no, right now copper piggy has a P/E of about 65, or about 5-6x what other copper mining companies are trading at.  I thought the P/E of 25-30 for a mine was crazy, well it is crazy and it doesn't matter that it is gold.  It is still a business that is selling off it metals in the ground and needing huge capital to build replacement mines.

But, Goldcorp managed to sell some properties, so out of 2007 65c/share earnings, only 53c is from continuing operations.  About 1/5th is from gains from selling off mines.  So, for 2007 earnings from operations declined from 91c to 53c or by about 42%.

This looking interesting...  In 2007 with 705 million shares and $85 million earnings from discontinued operations they made $460 million, or $375 million from continuing operations.  In 2006 with 435 million shares and only $8 million from discontinued operations they had a total of $408 million in earnings, so $400 million from continuing operations.  Brilliant, production goes from 1.7 million ounces to 2.3 million ounces (35% increase) and earnings from continuing operations declines by 7% and share count goes from 435 million to 705 million, or up 62%.

Investors currently have $12k invested per ounce of gold mined.

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