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I can't help but wonder what the gold industry's master crafter of deals has up its sleeve for its next strategic purchase, with some portion of a $1.2 billion cash treasure burning a hole in its pocket,
Despite the pair of operational snags at Penasquito and Red Lake that Goldcorp (NYSE: GG ) revealed earlier this month, this top-notch executor worked its way to adjusted net profit of $332 million in the second quarter. That's almost 20% below the prior-year mark, but a respectable result under the circumstances. Cash costs moved higher for the period, after shipments from the Alumbrera joint venture with XSTRATA and Yamana Gold (NYSE: AUY ) were temporarily halted when Argentina shortened the time window for miners to repatriate mining revenues from 180 days to just 15 days. That measure has since been reversed, and Alumbrera shipments resumed, as normal.
Goldcorp does have some expensive growth projects underway at present, and the company raised its estimate of 2012 capital expenditures to between $2.6 billion and $2.7 billion, as the final push toward imminent gold production from its Pueblo Viejo joint venture with Barrick Gold (NYSE: ABX ) begins.
In response to the sort of "industry-wide capital cost escalation" that this Fool has been busily tracking all along, Goldcorp hinted at some upward revisions to project costs that it expects to reveal by early-2013. Skyrocketing capital costs have crippled the shares of Thompson Creek Metals (NYSE: TC ) and Kinross Gold (NYSE: KGC ) over recent months, and just this week resulted in a crushing blow to NovaGold Resources, as Barrick opted to pass on the long-anticipated Donlin Creek project. As a consolation prize to frustrated investors, however, the trend does strongly support expectations for a sharp increase in the prevailing gold price.
Even in consideration of those escalating capital demands from its top-notch pipeline of development projects, Goldcorp looks well positioned to fund its aggressive growth initiatives, while still keeping an eye out for at least a smallish acquisition. The gold patch is ripe with acquisition opportunities, now that a sustained correction has decimated equity valuations to levels not seen since… well, ever! Given my expectations for forthcoming cash flow and capital needs, I'm looking for a transaction in the range of about $300 million to $500 million, and I suspect that priority may be given to projects presenting far lower initial capital costs than the mega-projects that have typified the majors in recent years.
I've long-since given up trying to predict which miners will fall prey to the industry's fairly gradual consolidation trend. The best I can do is to try to walk a mile in CEO Chuck Jeannes' shoes, and consider which targets I'd be considering at this juncture. With a modest estimate of just $450 for mine construction for its Back River gold project (according to a recent preliminary assessment), Sabina Gold & Silver (Symbol "SBB" on the Toronto Stock Exchange; "SGSVF" for U.S. investors through the OTC market) may just be the best-kept secret in gold.
And for enticing annual production estimated at 329,000 ounces of gold and nearly 500,000 ounces of silver, the estimated initial capital cost of beneath $750 million to construct Rainy River Resources' (Symbol "RR" on the Toronto Stock Exchange; "RRFFF" on the OTC) namesake project strikes this Fool as another powerful opportunity waiting to be snatched-up by the right gold producer. Because I believe Goldcorp is the most masterful operator in the industry, I would be thril led to see what riches await from either of these projects when placed in Goldcorp's eminently capable hands.
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- Add Goldcorp to My Watchlist
- Add Thompson Creek Metals to My Watchlist
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- Add Barrick Gold to My Watchlist