Owning and operating goldmines might not be a very good way to make money these days. Miners like Goldcorp (NYSE: GG) are facing falling revenues and declining incomes because of falling gold prices.
It is not supposed to be this way because gold prices are supposed to climb in times of economic and political turbulence like the ones that we are living through. That is not happening, gold prices have been falling in recent weeks as recently as April 18, 2017; a troy ounce of the precious metal was selling at $1,289.65 an ounce, but a little over two weeks later on May 5, 2017, the value had fallen to $1,228.96. That’s a decline of $60.69 in just two weeks.
Not coincidently shares of Goldcorp were trading at $13.61 on the New York Stock Exchange on the same day. As recently as February 17, 2016, GG shares were trading at $17.39 apiece.
Is Bitcoin Killing Gold?
What is going on here, why are gold prices falling even though the headlines are full of Donald J. Trump, Marine Le Pen, Brexit, ISIS and tensions with North Korea? The answer might be bitcoin; the cryptocurrency might be absorbing the cash flow that would normally go to gold.
Bitcoin hit a new high of $1,555.39 on May 5, 2017, while another popular cryptocurrency ethereum reached a price of $90.17 on the same day. There are several reasons why bitcoin is more attractive than gold; the biggest being that it appreciates faster (gaining $1,131.87 between May 5, 2016 and May 5, 2017), for example.
Bitcoin is also a lot easier to trade, transfer around and convert into currency. For example you can get cash for it if you can find a bitcoin ATM and spend it on a lot of websites including Dell. It is also possible to use bitcoin to buy real stuff in the real world with a Bitpay Visa. If you want to spend it at Walmart.com or Amazon.com you can buy gift cards online with it.
All this makes bitcoin a far better deal for the average person. Especially the average person in an unstable country where the local police can break down the door anytime, they want to and take your gold at gunpoint. Another big advantage to bitcoin is the resident of a country like Venezuela can use it to move all of his money out of the country and away from the greedy hands of the secret police.
Bitcoin Price Explosion Threatens Goldcorp
Some forces driving bitcoin’s price explosion are India and China countries where people historically buy gold as an investment. Younger Indians and Chinese might prefer cryptocurrency which is certainly bad news for Goldcorp.
India is the world’s largest market for retail gold. Its economy is in turmoil because of Prime Minister Narenda Modi’s decision to declare 86% of the cash in the country worthless last year.
There is a little hope for gold in India though, Paytm, the nation’s most popular digital wallet with 200 million users recently added a feature that lets users buy gold for as little as one rupee (16¢), FirstPost reported. The gold is stored in the vaults of a company called MMTC-PAMP whether this will save the gold price remains to be seen.
Goldcorp is in Trouble
Such turmoil comes at a very bad time for Goldcorp because the company is struggling with falling revenues.
Goldcorp’s revenues fell by $854 million between March 2016 and March 2017. The company reported $4.302 billion in revenues in March 2016; that dropped to $3.448 billion a year later. This reverses the trend of growing revenues in 2016, revenues have being falling for our straight quarters.
There is improvement despite the revenue drop; Goldcorp’s net income increased by $4.242 billion between first quarter 2016, and the same period in 2017. GG reported a loss of $3.99 billion in March 2016 and a net income of $252 million in March 2017.
Is Goldcorp a Value Investment?
The sudden income growth will have many people wondering if Goldcorp is a value investment. I would say not because its float and cash are limited.
Ycharts data for March 31, 2017 indicates that Goldcorp still has very little cash in spite of the income gains. Some numbers that show us Goldcorp is not a value investment include:
- A free cash flow of $47 million.
- Assets of $21.58 billion.
- Cash and short-term investments of $212 million. This was less than half the $458 billion reported in March 2016.
- $967 million in cash from operations at the end of first quarter 2017. This was down from $1.431 billion in March 2016.
These numbers show us that Goldcorp has very little float because it is generating less cash. Therefore Goldcorp is not a value investment because its prospects for future growth are limited.
Nor it is a growth investment, shareholders were punished with a return on equity of 1.91% on March 31, 2017, which was an improvement over the -25.8% reported a year earlier.
Goldcorp is a Lousy Investment
, its’ shareholders received a paltry 2¢ on March 14, 2017. That number has not changed March 2012, which means nobody seems to be making money on this stock.
Stay away from Goldcorp because it is heading straight to the junk pile. Goldcorp should serve as a warning to investors, keep away from gold mining stocks because they lose money.