Balance sheet remains strong
Goldcorp (GG) has a strong balance sheet compared to its peers. Its net debt remained almost constant at $2.3 billion at the end of fiscal 3Q16 compared to 2Q16. However, during fiscal 2015, it reduced its net debt 24% from $3.1 billion to $2.4 billion. The sale of non-core assets during the year also contributed to this decline.
The company ended the third quarter of 2016 with strong liquidity of $3.4 billion. Of that, the undrawn revolving credit facility accounts for $3 billion.
During its investor day, Goldcorp’s CEO, David Garofalo, mentioned that the balance sheet is fundamental and that the company is trying to further deleverage it. He said that the company is in a “harvest mode” right now. This should enable it to deleverage and releverage when its NuevaUnion project starts building up. It should be a capital-intensive project with the need to raise money.
Right now, due to its low capital intensity, the company is in a strong position to generate significant free cash flow. This should drive its net debt-to-EBITDA[1. earnings before interest, tax, depreciation, and amortization] lower. The company is aiming to drive it down below 1x in 2018.
As the above graph shows, Goldcorp (GG) has the lowest financial leverage in the senior gold miners’ universe (GDX). Barrick Gold (ABX) and Newmont Mining (NEM) come in on the higher end. Investors should, however, note that these companies have significantly reduced their financial leverages over the last few years. Yamana Gold (AUY) and Kinross Gold (KGC) have higher financial leverage than Goldcorp. Goldcorp’s leverage is expected to remain at a lower level than its peers.
The iShares Gold Trust ETF (IAU) and the SPDR Gold Shares ETF (GLD) are two major gold ETFs that track the performance of gold prices. Randgold Resources (GOLD) and Kinross Gold (KGC) form 5% and 4%, respectively, of the Sprott Gold Miners ETF (SGDM).