Industry Analysis - Gold Mining in Canada

Industry Analysis - Gold Mining in Canada 1

Industry Analysis Gold Mining in Canada

Fundamental Analysis of Barrick Gold and Goldcorp Inc.

Basant Ramachandran Canadian Securities Course | George Brown College, Toronto | 2014

Industry Analysis - Gold Mining in Canada

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TABLE OF CONTENTS

TABLE OF CONTENTS............................................................................................................................... 2 EXECUTIVE SUMMARY ............................................................................................................................ 3 INTRODUCTION....................................................................................................................................... 4

Company Analysis ............................................................................................................................... 4 Analysis Approach............................................................................................................................... 5 Industry Analysis Overview ..................................................................................................................... 6 Ratio Analysis: ..................................................................................................................................... 6 Dividend Discount Model Analysis:..................................................................................................... 6 PESTELE Analysis: ................................................................................................................................ 8 SWOT Analysis: ................................................................................................................................... 9 VRIO Analysis: ................................................................................................................................... 10 Conclusion............................................................................................................................................. 11 Recommendations ................................................................................................................................ 11 LIST OF APPENDIX ................................................................................................................................. 12 APPENDIX ? I COMPANY RATIOS.................................................................................................13

Liquidity Ratio: .............................................................................................................................. 13 Profitability ratio: .......................................................................................................................... 14 Risk Ratios: .................................................................................................................................... 15 Value ratios: .................................................................................................................................. 16 Operating Performance Ratios: .................................................................................................... 18 APPENDIX ? II DIVIDEND DISCOUNT MODELS (DDM) .................................................................. 19 DDM ? Goldcorp ........................................................................................................................... 19 DDM ? Barrick Gold.......................................................................................................................22 APPENDIX ? III INDUSTRY PESTEL ANALYSIS ................................................................................. 25 APPENDIX ? IV INDUSTRY SWOT ANALYSIS ................................................................................... 28 APPENDIX ? V VRIO ANALYSIS ...................................................................................................... 29 VRIO ?GOLDCORP ......................................................................................................................... 29 VRIO ? BARRICK GOLD .................................................................................................................. 31 BIBLIOGRAPHY ...................................................................................................................................... 33

Industry Analysis - Gold Mining in Canada

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EXECUTIVE SUMMARY

Challenging times ahead for gold miners

Mining industry in Canada is undergoing a consolidation after a growth cycle. The industry at large is going through a downturn and is adjusting to the market risks.

In the last year, both commodity and equity prices have been falling globally followed by multiple billion dollar write-downs. Gold is no more seen as a safe investment haven and the commodity demand from Asian giants - India and China has considerably dwindled pushing down the markets globally.

The consistency of poor profitability ratios from the leading gold producers in recent quarters has driven away investor confidence in the sector. The huge write-offs, legal issues around the mining permits, environmental challenges and new tax regulations have further dented the investor sentiments.

The ratio analysis of the leading companies against the industry indicates that, both 2012 and 2013 had been a very rough ride for the mining sector. On the operations front, projects have been deferred and capital spending subdued.

Both Barrick Gold and Goldcorp seem to maintain a strong liquid position, though their profitability is well into the negative territory. Among them, Barrick gold seems to have an aggressive approach and hence considerably risky.

The fundamental analysis, PESTEL and SWOT analysis for the gold mining industry reveals a whole lot of new perspective and lists the challenges faced by the gold mining industry in Canada.

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INTRODUCTION

A look into the gold mining industry in Canada reveals a challenging time ahead for the sector. This report delves into a comprehensive analysis of two of the industry leaders in gold mining sector in Canada ? Barrick gold and Goldcorp Inc. The analysis covered the fundamental health of the company, their strengths and the global environment in which they operate.

Company Analysis

The report analyses the two companies comparing them head to head and against the industry performance for the last 4 years to study and understand the differences and challenges they pose to an investor.

The companies had been compared using the fundamental analysis technique by looking into their financial statements

Income Statement Balance sheet Cash flow statement

Four analysis techniques have been employed to study the two companies as follows:

Company Ratio Analysis PESTEL Analysis SWOT Analysis VRIO Analysis

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Analysis Approach

Following are the criteria used to select the two companies - Barrick gold and Goldcorp for this project:

Both the companies are listed in Toronto Stock Exchange (TSX The market capitalization of both companies is closer hence allowing for a fair

comparison. The region of mining operations for both is primarily based out of South and Central

America. The primary commodity mined by either is Gold. Both are industry leaders and hence contribute to the sector standards.

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