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Can Goldcorp Withstand the Lower Gold Price Environment?

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Comfortable financial position

Goldcorp (GG) is continuing with the sale of its non-core assets. The company’s latest divestments included the sale of its interest in the South Arturo project and the sale of its 26% stake in Tahoe Resources (TAHO). A part of the consideration was used to pay down the debt.

Goldcorp is paying down debt and its balance is less leveraged as compared to its peers like Newmont Mining (NEM), Barrick Gold (ABX), and Kinross Gold (KGC). Going forward, Goldcorp plans to repay its debt from asset proceeds, which should be a positive in a weaker gold price environment.

Also, the continued ramp-up of its Cerro Negro and Eleonore mines means a more sustainable production profile and the potential for cash flow generation going forward. Costs per unit are also declining based on increasing production, higher grades, and efficiency efforts.

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Managing the volatile gold price environment

Goldcorp’s management is quite proactive in managing the volatile gold price environment. It cut dividends by 60%, which should save the company $300 million per year. Cutting dividends despite healthy free cash flow generation is evidence of the company’s approach. The management also mentioned during the call that in case of a gold price environment below $1,000 per ounce, it might reconfigure and shut down mines or operations that are running on a net cash deficit basis. Goldcorp’s management also said that despite a strong balance sheet, it will not operate in a mode where money keeps going out for an extended period of time.

Investors who don’t want to pick up individual companies can invest in gold miners through the VanEck Vectors Gold Miners ETF (GDX), which invests in senior and intermediate gold miners. Newmont forms 6.1% of the ETF’s holdings. The SPDR Gold Shares ETF (GLD), on the other hand, provides exposure to spot gold prices.

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