A round of introductions
Goldcorp and Barrick, both headquartered in Canada, are two of the world's largest gold producers. In 2017, Goldcorp estimates it will have 2.5 million ounces of gold production, while Barrick forecasts between 5.3 million and 5.6 million ounces of gold production. Unlike Goldcorp, whose assets -- four mines in Canada, two mines in Mexico, and four mines in Central and South America -- are solely found in the Americas, Barrick has more of a global footprint. In addition to its five core mines found in the Americas, Barrick maintains gold-production assets in Australia and New Guinea. [Gold coins spill out of a bag onto dollar bills.
Since some mines are more profitable than others, it would be reductive to consider Barrick a better choice than Goldcorp solely based on the difference in portfolios. So let's dig a little deeper into these companies by comparing them on some important metrics.
Company Market Cap FY 2016 Revenue FY 2016 EPS FY 2016 Operating Margin
Goldcorp $11.9 billion $3.51 billion $0.19 10.5%
Barrick Gold $19.2 billion $8.56 billion $0.56 31.1%
DATA SOURCE: MORNINGSTAR.
Between the higher earnings per share and higher operating margin, Barrick seems to be emerging as the better opportunity, but forming a final decision is complicated and requires closer scrutiny. Taking into account the companies' debt levels and profitability, for example, are also important Things to consider. Could Goldcorp offer a more compelling argument than Barrick, or will further examination prove that Barrick is the better option? Let's continue to dig in and find out.
The case for Goldcorp
After reporting negative free cash flow from 2012 through 2014, Goldcorp has righted its ship over the past two years: In 2015 and 2016, it generated free cash flows of $235 million and $109 million, respectively. Last year, management revealed a five-year plan to drive the company even further in the right direction. For one thing, it expects to grow gold production by approximately 20% from 2016 to 2021 while reducing its all-in sustaining costs (AISC) by 20%. And, with the aim of ensuring growth over the long term, Goldcorp aspires to grow its gold reserves about 20% -- from 42.3 million ounces it reported in 2016 to 50 million ounces by 2021. Barrick Gold, by contrast, doesn't have a well-articulated plan regarding its medium-term growth.
Another feather in Goldcorp's cap is its sound financial position. Whereas Barrick relies more heavily on debt to keep the drills digging, Goldcorp has maintained a more conservative stance with regard to its balance sheet.
Goldcorp has $500 million in debt repayable in March 2018 and the balance of its total debt -- about $2 billion -- due after 2020; consequently, the company can reinvest its cash into various expansion projects in its pipeline, like the Pyrite Leach Project at Penasquito in Mexico, and the Materials Handling Project at Musselwhite in Canada.
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