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Goldcorp Inc. slashed its dividend and lowered its production guidance for the following 3 years on Thursday as the company tries to maintain a strong balance sheet and faces unexpected problems in an Ontario project.
The stock dropped 13 per cent on Friday in reaction towards the news, closing at $18.73 in Toronto. It had been the worst performer among people in the Bloomberg Americas Mining Index.
The Vancouver-based mining giant moved from a monthly dividend of 2 US cents a share to a quarterly dividend in the same level, effectively reducing the annual payout by two thirds. Goldcorp said this lowered dividend still offers a “competitive” yield, while allowing the organization to invest in its growth projects.
One of these growth projects has already been facing major challenges. Goldcorp removed the Cochenour project from the production guidance for the next 3 years and said the project is re-entering the “advanced exploration” phase.
Cochenour, in Ontario’s Red Lake camp, was supposed to start producing gold last year. But Goldcorp ran into unexpected geologic issues underground that delayed development. By moving the troubled project all the way back to the exploration stage, Goldcorp effectively told the market that there’s still lots of try to do.
Another negative surprise was the Los Filos mine in Mexico, where Goldcorp shrunk the mine life because it moved 5.3 million ounces of low-grade material from its reserves.
With Cochenour out of production guidance, it was not surprising the overall forecast dropped. Goldcorp said it expects to produce between 2.8 and three.A million ounces of gold a year in every of the next 3 years. Previously, the company forecast as much as 3.Six million ounces in 2016, as much as 3.7 million in 2017, and up to 3.4 million in 2018.
“As the new production guidance is disappointing, to all of us it appears grounded in reality,” TD Securities analyst Greg Barnes said in a note.
For the fourth quarter, Goldcorp reported an adjusted loss US$128 million, or US15 cents a share, along with a monster net loss of US$4.3 billion because of impairments. However, the company said it generated free cash flow of US$239 million in Q4 as it produced 909,400 ounces of gold at all-in sustaining costs of US$867 an ounce (excluding inventory impairments).
“In annually marked by continued metal price volatility, we achieved three successive quarters of free income generation as a result of continued focus on lower costs and better margins,” chief executive Chuck Jeannes said inside a statement.
Going forward, Goldcorp hopes to boost production through brownfield expansions at a number of of their mines. The company said these expansions are low risk and provide high rates of return. Barrick Gold Corp. is undertaking a similar strategy.
Gold prices have rallied so far in 2016, and Goldcorp’s stock price is up nearly 35 per cent. Jeannes said the company is “encouraged” by the rally and is “well positioned for future success.”
This was the last quarterly earnings report Jeannes will oversee as CEO. He’s retiring and passing the reins to David Garofalo, who joined the organization from HudBay Minerals Inc. Garofalo gets control as CEO on Monday.
pkoven@postmedia.com
Twitter.com/peterkoven
