Whom Will Goldcorp Gobble Up Next?

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.

Looking for more ideas? Download The Motley Fool's special free report "The Tiny Gold Stock Digging Up Massive Profits." Our analysts have uncovered a little-known gold miner that we believe is poised for greatness; find out which company it is and why we strongly believe in its future -- for free!

Fool contributor Christopher Barker can be found blogging actively and acting Foolishly within the CAPS community under the username TMFSinchiruna. He tweets. He owns shares of Goldcorp, Rainy River Resources, Sabina Gold & Silver, and Thompson Creek Metals. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.


Read/Post Comments (9) | Recommend This Article (16)

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  • Report this Comment On July 29, 2012, at 6:39 AM, skypilot2005 wrote:

    Sinchi wrote:

    "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."

    Yes. Mr. Jeannes could easily fund one of those using just the funds in his "cookie jar".

    http://www.goldcorp.com/Investor-Resources/News/News-Details...

    "Quarter-end cash balance of $1.2 billion; net cash position of $359 million 4.

    Net cash position is the quarter-end cash balance less the face value of the convertible debenture of $862.5 million which includes the liability and equity components."

    Sky

    Official Web Link Assistant to Sinchi

  • Report this Comment On July 29, 2012, at 7:07 AM, skypilot2005 wrote:

    Sinchi wrote:

    "I've long-since given up trying to predict which miners will fall prey to the industry's fairly gradual consolidation trend."

    It appears Mr. Jeannes has ample funds available in his "cookie jar" for a purchase. Possibly two.:

    http://www.goldcorp.com/Investor-Resources/News/News-Details...

    "Quarter-end cash balance of $1.2 billion; net cash position of $359 million4.

    Net cash position is the quarter-end cash balance less the face value of the convertible debenture of $862.5 million which includes the liability and equity components."

    Sky

    Official Web Link Assistant to Sinchi

  • Report this Comment On July 29, 2012, at 7:09 PM, walion wrote:

    Newstrike Capital (NES) has to be considered a prime buyout play. But Goldcorp had better move fast before Carlos Slim or Eike Fuhrken Batista moves on Newstrike.

    "People had said everything had been discovered in Mexico. Now you're seeing a renaissance," said Richard Whittall, chief executive of Canada's Newstrike Capital Inc., which discovered the Guerrero site, still under exploration.

    http://online.wsj.com/article/SB1000142405270230373420457746...

  • Report this Comment On July 30, 2012, at 7:35 AM, XMFSinchiruna wrote:

    walion,

    Newstrike would present an interesting public relations snag, in that the company sold Ana Paula to Newstrike for CDN $2.1m in 2010. :)

  • Report this Comment On July 30, 2012, at 7:38 AM, XMFSinchiruna wrote:

    skypilot2005,

    It's important to keep the company's forthcoming CAPEX needs in mind when estimating how much capital might be conservatively available to fund acquisitive growth.

  • Report this Comment On July 30, 2012, at 1:38 PM, Jbay76 wrote:

    I would have thought that Rubicon would be a logical buyout, just on the other side of Red Lake from Goldcorp, with lots of upside potential...

  • Report this Comment On August 01, 2012, at 9:07 AM, XMFSinchiruna wrote:

    JBay76,

    Rubicon certainly makes a clean fit, but many in this industry spent years anticipating such a move, and it never developed. I could be wrong, but it seems to me that the time for that deal has passed. I frankly don't think GG is in a position to cough up the $1B-plus it would take while still sticking to a conservative capital allocation strategy.

  • Report this Comment On August 01, 2012, at 7:28 PM, walion wrote:

    Yes, and these new intersects have got to make GG wonder even more why they sold this a few years ago:

    Newstrike Capital Intersects 103.11 Meters Of 5.06 G/T Au At The Ana Paula Project

    http://newstrikecapital.com/investors/news-releases/index.ph...

  • Report this Comment On August 06, 2012, at 4:04 AM, lanceim59 wrote:

    If anyone is into small-cap high growth mining stocks, you should look into Woulfe Mining (TSX-V symbol: WOF or OTCQX symbol: WFEMF). Back in February 2012, Warren Buffet invested $80 million in Woulfe Mining which is one of the largest tungsten producers in the world! Tungsten is one of the hardest metals and is used for the tips of mining drills as well as jewelry. Woulfe Mining is projected to start production in the Sanddong Mine(one of the largest tungsten mine in the world) some time in 2013.

    http://www.moneymorning.com.au/20120613/why-warren-buffett-i...

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