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Goldcorp’s Immediate Focus Will Be on Organic Growth

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Internal growth opportunities available

Goldcorp (GG) provided its guidance for production for 2015–2019. During Goldcorp’s presentation on April 9, CEO Chuck Jeannes discussed the company’s production profile, which is more or less flat after 2017. The current production profile is based on current reserves and mine plans.

There are many projects that do not currently fall under any mine plan, but that have significant potential to add ounces to the company’s current production. These projects include opportunities at Penasquito (metallurgical enhancement project and Camino Rojo), Eleonore (Crown Pillar project), and Porcupine (Borden).

These projects should help Goldcorp maintain its production profile after 2017, without any need of an acquisition. Analysts had expected another acquisition bid by Goldcorp after its failed 2014 bid for Osisko Mining, which was later acquired by Yamana Gold (AUY) and Agnico Eagle Mines (AEM).

There is still scope for an acquisition, but only if it ranks above the organic growth opportunities that are internally available to the company.

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Hurdle rate remains 15%

Most of Goldcorp’s internally available options are at existing operations, giving the company another benefit. It can leverage the existing infrastructure and increase the returns. Goldcorp’s management has a hurdle rate (a minimum acceptable rate of return on a project) of 15% pre-tax on investments using a short-term gold price of $1,200 per ounce and $1,300 per ounce in the long term.

Goldcorp’s competitors, including Barrick Gold (ABX) and Newmont Mining (NEM), also have a mid-teens hurdle rate at a gold price of $1,200 per ounce.

Newmont, Goldcorp, and Barrick form ~20% of the VanEck Vectors Gold Miners ETF (GDX), while the SPDR Gold Trust ETF (GLD) provides exposure to spot gold prices.

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