Goldcorp: Strong Liquidity and Cash Flow Are Catalysts

Goldcorp (GG) has shown little progress in the third quarter. Its high cost mines have prevented it from reporting what otherwise could have been the lowest AISC in the industry. One positive thing with Goldcorp is a clean balance sheet. But the investors have made it clear that the company will have to continuously deliver progressive results relative to its peers if it has to grab their attention.

Strong metrics

Operating cash flows, including discontinued operations, was up at $443 million from $192 million, while without discontinued operations the operating cash flows were $374 million compared to $399 million in 2014.
In terms of free cash flows, the third quarter has been a pleasant surprise for Goldcorp’s investors given the state of gold market.

The company achieved a positive free cash flow of $243 million before dividends, compared to a negative free cash flow before dividends of $(355) million last year. At the end of the quarter, Goldcorp’s liquidity stood at more than $3.3 billion, including $257 million of cash and cash equivalents, money market investments of $73 million and an undrawn revolving credit facility of $3 billion. The company paid dividends of $75 million.

Goldcorp has also taken a big leap in production and sales on a year over year basis. The company’s gold production increased from 651,700 ounces last year to 922,200 ounces this year. That was also 2% or 14,200 ounces higher than the second quarter 2015. Similarly, gold sales were 942,600 ounces, compared with 641,400 ounces in 2014.

The company is strategically making certain mergers and acquisitions which will help it in the long run. In August, it entered into an agreement to acquire 30% of New Gold Inc.’s ("New Gold") interest in the El Morro project in Chile giving Goldcorp a 100% ownership of the project. Another announcement was about Project Corridor which is a joint effort by Goldcorp and Teck Resources Limited ("Teck") and aims at combining their respective El Morro and Relincho projects into a single project held by a 50/50 joint venture.

Conclusion

Thus, despite weakness in the previous quarter, Goldcorp is making a number of positive moves that will allow the company to improve its financial performance in the long run. Hence, it will be a good idea to invest in Goldcorp despite weak results last quarter.
Published on Nov 13, 2015
By Harsh Singh Chauhan

Copyrighted 2016. Content published with author's permission.

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