2Q15 Highlights: Goldcorp Braces for Volatile Gold Market Outlook
Reduction in dividends
Goldcorp (GG) took several steps during 2Q15 to weather the current weaker gold price environment. The company reduced dividends by 60% to $0.02 per month. During the call, management commented that this is to ensure flexibility to fund its organic growth opportunities.
In light of weaker metal prices, the company wants to better allocate its free cash flow. This is the reason which also prompted another major gold miner, Barrick Gold (ABX), to slash its dividends by 60%.
Sale of non-core assets
Goldcorp also continued with the sale of its non-core assets. The latest divestments were the sale of company’s interest in South Arturo project and the sale of its 26% stake in Tahoe Resources (TAHO).
On June 30, 2015, Goldcorp announced the closing of secondary offering of Tahoe for $800 million. Goldcorp recognized a net gain of $252 million on this sale. On June 2, 2015, the company also completed the sale of its 40% interest in the South Arturo project in Nevada for a cash consideration of $20 million and a further 5% interest in Rahill–Bonanza joint venture in Red Lake.
During 2Q15, Newmont Mining (NEM) also sold its non-core Valcambi refinery in Switzerland to a subsidiary of Rajesh Exports for $119 million.
Meanwhile, Barrick Gold is getting rid of most of its non-core assets to optimize its portfolio and reduce debt. Barrick forms 5.5% of the Market Vectors Gold Miners ETF (GDX). To get exposure to gold prices, investors can also invest in gold-backed ETFs such as the SPDR Gold Trust ETF (GLD) and the iShares Gold Trust ETF (IAU).
Extension of credit facility
In June, Goldcorp also announced the extension of its credit facility from $2 billion to $3 billion. This facility is unsecured and bears interest at LIBOR (London interbank offered rate) plus 120 points. The company intends to use it for liquidity and general corporate purposes. Goldcorp’s undrawn balance from this facility was $2.2 billion.
In the next part of this series, we’ll see how Goldcorp is managing its balance sheet in this challenging gold price environment.
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