GG’s merger and acquisition strategy is different than its peers

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Nov. 27 2019, Updated 5:10 p.m. ET

Goldcorp generates cash flows

Although every gold miner talks about only doing merger and acquisition (or M&A) strategies that are in shareholders’ best interests, Goldcorp (GG) sticks to its strategy—unlike most of its peers. It avoided the temptation to buy high-cost mines during the high gold price environment. This protected Goldcorp’s ability to generate cash flows—even in a low commodity price environment.

Asset writedown

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Wise M&A strategy

Goldcorp has a very wise merger, acquisition, and divestiture strategy in place. An example of a company not sticking to its strategy is Barrick Gold’s (ABX) purchase of Equinox Minerals in 2011. In contrast, Goldcorp made wise capital allocation decisions. This led to a massive write down of ~$8.70 billion for Barrick in 2013—compared to $1.96 million for Goldcorp.

Osisko bid

Goldcorp filed a formal bid for Canada-based Osisko Mining in January 2014. The initial bid was for $5.95 per share. Goldcorp revised the offer by 29% to $7.65 per share, when Yamana Gold (AUY) made its offer to buy Osisko. The premiums started rising when Agnico Eagle Mines (AEM) entered the fray. Combined, Agnico and Yamana bid for Osisko at $8.15 per share.

Goldcorp’s management decided not to increase the bid more. Management thought that increasing the bid would have made it overpay for the asset. It wouldn’t have been in the shareholders’ best interests.

This helped Goldcorp keep its debt within reasonable limits—compared to its senior peers.

Investors can invest in the VanEck Vectors Gold Miners Index Index (GDX). GDX invests in intermediate and senior gold producers. The SPDR Gold Shares (GLD) tracks the spot gold price.

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