Citi's Brian Yu downgraded the rating on Goldcorp Inc. (USA) GG from Buy to Neutral, with a price target of $15, following the company's disappointing 4Q earnings report and guidance.
Goldcorp's production guidance was weaker than expected, although partially mitigated by lower costs.
Yu noted, however, that "the company has faced a series of obstacles in the past few quarters and the latest major setback is the reclassification of its late-stage Cochenour project back to advance exploration as more recent drill results indicate that the mineralization is different than expected."
Goldcorp has guided to 2.8-3.1 million ounces of production annually during 2016-2018, significantly below the 2.5 million ounces produced in 2015 and the estimate for 2016-2018. However, the by-product cash cost guidance was better than the estimate.
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The company has removed Cochenour from its 2016-2018 production guidance due to "deviations in the geology and structures seen from drilling & development in 2015."
"This setback is significant given that Cochenour was already so close to the finish line. Commercial production was set to begin in 3Q16 and the majority of capital had already been deployed with ~$70 mln left in 2016," the analyst said.
In addition, Éléonore has been ramping slower than initially estimated, while the core Peñasquito mine appears to be moving into a multi-year period of low grade production.
"That said, GG still has a strong balance sheet with liquidity of $3.5 bln and should generate positive free cash flow," the Citi report added.
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