Goldcorp: Growth Projects Are on Schedule and on Budget

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Goldcorp Inc. (NYSE:GG), the largest gold miner by market value, announced on Wednesday that it has entered into an agreement to sell its entire holdings of Primero Mining Corp (NYSE:PPP), a Canada-based gold and silver producer. The offering represents the sale of approximately 19.8 percent of the issued and outstanding shares of Primero. The agreement includes sale of 31.2 million shares at an offering price of Canadian $7.20 per share for total proceeds of Canadian $224 million.

Goldcorp had originally acquired shares of Primero as part of payment for the sale of its San Dimas gold and silver mine in August 2010 for $213.6 million in cash and 31.2 million shares of PPP valued at $159.2 million. The sale of Primero shares is positive for GG. The sale will strengthen the company’s balance sheet and can provide potential funding for its bid on Osisko Mining (OSK) or assist the company with its capex obligations. The sale will also help the company lower its net debt/EBITDA ratio, which would come down to 0.9x.

Goldcorp has three major projects nearing completion, and although it has put its offer to acquire Osisko Mining on hold for now, with the potential acquisition of OSK, GG would be boasting the best growth profile among its peers over the next couple of years. With initial expected production of 130,000 to 180,000 ounces of gold, Cerro Negro is expected to start production by mid-2014. Cochenour is expected to come online six months ahead of schedule, with upfront capital costs expected to be $44 million lower than the original estimates of $540 million as a result of a revised development plan. Ramp-up is expected to begin before year-end. Finally, Elenore is also on schedule for a fourth-quarter 2014 start and is expected to produce 40,000 to 60,000 ounces of gold this year.

The Vancouver, British Columbia-based company reported fourth-quarter 2013 earnings per share of 9 cents, missing consensus estimates of 22 cents. Higher-than-expected taxes and lower gold sales volumes both contributed to miss. It might appear at first glance that the company missed consensus estimates by a significant margin; however, the reported adjusted EPS number includes the non-cash impact of the Mexican corporate tax change on its deferred tax liabilities. Excluding this non-cash item, GG’s results beat consensus largely on lower AISC. The company also reiterated its 2014 production guidance of 3 million to 3.15 million ounces at byproduct cash costs of $550-$600 per ounce and all-in sustaining cash costs AISC of $950-$1,000 per ounce, compared to 2013 production of 2.7 million ounces at byproduct cash costs of $553 per ounce and AISC of $1,031 per ounce.


Goldcorp is not only positioned to exhibit strong production and cash flow growth, it also offers investors the security of operating in politically stable jurisdictions. All of the company’s three major growth projects are expected to come online on schedule and on budget in the next few quarters. The company is not only expected to grow its production substantially from new mines, it is also increasing production from Penasquito and Pueblo Viejo. GG is also maintaining a flat cost profile and its AISC are declining. Among its peers, GG is a high-quality gold miner and is expected to continue its growth through 2016 along with declining operating and capex costs. Goldcorp also continues to optimize its portfolio in the current environment through divesting non-core assets and strategically offering to acquire Osisko Mining.