It's certainly not the stock's 6% drop in 2017 that will make the past year a memorable one for Goldcorp's (GG) investors. Instead, the year will glitter in shareholders' memories as it represents the year in which the company announced and began to implement its five-year growth initiative to increase shareholder value -- something that has dwindled for the past few years. Goldcorp ended fiscal 2012 with $27.99 in book value per share, according to Morningstar; however, this steadily dropped over the next five years, resulting in the company ending fiscal 2016 with $15.63 in book value per share.
Taking a three-pronged approach toward growing net asset value per share by 2021, Goldcorp plans to achieve 20% increases in both gold production and reserves from its fiscal 2016 levels and a 20% reduction in all-in sustaining costs (AISC) from its fiscal 2016 amount.
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A big production
Reporting preliminary gold production of 2.569 million gold ounces for fiscal 2017, Goldcorp contends that it's well-positioned to achieve its gold production target of three million to four million ounces by 2021.
Although Goldcorp went shopping last year, acquiring assets in Chile, the company primarily intends to reach its gold production target through organic growth. At Penasquito, for example, management estimates the Pyrite Leach Project, which is expected to begin commercial production at the end of 2018, will add incremental annual gold production between 100,000 ounces and 140,000 ounces.
In addition to Penasquito, there are several other catalysts management believes will help the company reach its 2021 gold production target. Besides ramp-ups in gold production at the Eleonore and Cerro Negro camps, the addition of automation capabilities at Musselwhite and Eleonore will help the company dig more yellow stuff out of the ground.
Preparing for the future
As gold-mining companies deplete their resources, it's essential they replenish their reserves, ensuring that they have more gold to mine when the time comes. To this end, Goldcorp aspires to grow its gold reserves from the 50 million ounces it reported at the end of fiscal 2016 to 60 million ounces by 2021.
According to its preliminary results, Goldcorp made significant progress toward its goal, reporting an estimated 53.5 million ounces in reserves at the end of fiscal 2017.
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A major driver in the company's reserves growth was the activity at Dome Century at Porcupine, where 4.7 million ounces were converted to gold reserves.
In many cases, the replenishment of gold reserves through organic means -- which is Goldcorp's intent -- is more desirable than the addition of reserves through acquisitions because the company already has the infrastructure in place to support the additional gold production, thereby keeping costs low.
Digging into costs
Lastly, Goldcorp foresees reducing AISC from the $856 per gold ounce it reported in fiscal 2016 to $700 per gold ounce in fiscal 2021. The company is apparently heading in the right direction. Based on preliminary results, Goldcorp achieved its fiscal 2017 guidance and had AISC of $825 per gold ounce.
One strategy the company is implementing to help realize the reduction in AISC is the optimization of its portfolio. According to management, the company's optimal portfolio will reflect gold production from six to eight large-scale camps that will help Goldcorp achieve economies of scale and drive down AISC.
Besides a more streamlined portfolio, management is relying on more streamlined operations. In 2016, management announced an initiative to recognize $250 million in annual sustained efficiencies by 2018. At the end of 2017, management had identified about $200 million, leaving it well positioned, in its estimation, to achieve its target by mid-2018. In fact, management is so optimistic that it will achieve its goal that during its recent Investor Day presentation, it acknowledged the potential to increase the efficiencies target in the second half of 2018.
Investor takeaway
Revealing a clear path forward for the next five years, Goldcorp assuaged many investors' fears last year that the company was losing its luster. And if it's successful in executing its growth strategy, the fruits of Goldcorp's labors will extend beyond 2021, positioning the company to glitter in 2022 and beyond.
Moving forward, investors should, of course, monitor the company's progress in meeting its gold production, gold reserves, and AISC targets. But that's not all. Digging the yellow stuff out of the ground doesn't come cheap, and it's not uncommon to find mining companies buried under mountains of debt. Investors, therefore, should keep watch over the company's balance sheet to make sure management doesn't rely too much on leverage in order to meet its five-year growth strategy goals.
