Goldcorp (GG) announced in its 2Q16 results that it had identified measures to deliver about half of its annualized savings of $250 million:
- The workforce reductions and efficiency improvement at Cerro Negro are expected to contribute ~$65 million to annual efficiencies.
- $55 million have been identified in administrative cost savings.
- The balance of efficiencies are expected to come from Penasquito site optimization.
On being asked a question about its capital allocation, the company’s management mentioned that its priorities are as follows:
- deleverage the balance sheet
- explore brownfield expansion opportunities
- sell non-core operations in Los Filos, Marlin, and Alumbrera
Pruning financial leverage
On the back of strength of cash flow from operations, the company expects its net debt-to-EBITDA (earnings before interest, tax, depreciation, and amortization) to be below 1x. The company is planning to do this by paying off its “natural debt maturities over the next couple of years.”
Goldcorp is very comfortable as far as its financial leverage is concerned compared to its peers such as Barrick Gold (ABX) and Newmont Mining (NEM). However, the company mentioned that because it’s in a harvest period, it would like to maintain lower leverage.
Leveraged funds such as the Direxion Daily Gold Miners Bull 3X ETF (NUGT), the Direxion Daily Junior Gold Miners Bull 3X ETF (JNUG), and the Direxion Daily Junior Gold Miners Bear 3X ETF (JDST) are other ways to gain exposure to gold.
In the next part of this series, we’ll take a look at Goldcorp’s 2016 growth in production as seen through its 2Q16 results.