Goldcorp: All Set to Soar
As the price of gold rises, Goldcorp (GG) remains one of the best bets in the industry. This is because the company has been aggressively focused on enhancing its production from areas where it can generate more profitability and reduce costs. Let’s see how.
Exploring in the right areas
Goldcorp is conducting a pre-feasibility study for additional veins at the Marianas Complex, which is expected to get completed by the end of this year. So, a move such as this does not only improve its productivity but enables the company to reduce its costs going forward.
Apart from this, the company is expected to benefit from its recently announced acquisition of Kaminak Gold (KMKGF) for $406 million.
More importantly, the all-in-sustaining cost of this project is estimated to be at $550 per ounce that should enhance net present value for the projects, which is expected to be at around 37%.
Focus on cost savings
Goldcorp continues to work on its efficiency objective set in the last quarter. It has recently identified savings of nearly $125 million of its targeted $250 million in sustainable annual efficiencies. Apart from savings of $65 million at Cerro Negro as stated above, the company has identified administrative cost savings of approximately $55 million additionally, due to its efforts of shifting focus to the decentralized operating model. As a result of this shift, the company is laid off nearly one-third of its employees at its corporate and regional offices in the last quarter. The company plans to achieve 65% of this savings by the end of 2016.
The remaining savings are projected to come from its optimization efforts at the Penasquito site. The company expects efficiency savings of approximately $50 million to $60 million from Penasquito and another $60 million to $90 million from optimization at the Canadian sites. These overall efforts should position the company to deliver its targeted $250 million efficiencies by 2018.
The most important thing is that the company believes these efficiencies across the business will add approximately $2.00 billion of incremental net asset value to its business or almost $2.50 per share upon realization. This is a welcome sign for investors that should enable the company to improve its returns from the assets and create value for its shareholders.
Goldcorp thus looks rejuvenated from its restructuring efforts that should be able to improve its production and at the same time lower its cost structure going forward. Also, the company is adding higher grade assets such as Pyrite Leach projects as discussed above that should enable the company to keep its production intact in the future. Therefore, investors should remain invested in the company for further rewards.