What is Goldcorp Doing With All That Cash?

The announcement yesterday that Goldcorp (GG) is selling 25% of Silver production at its Penasquito mine to its partner there, Silver Wheaton (SLW), for $485m cash, comes at a time when GG is already flush with cash. In February of this year, GG picked up another $300m cash when it sold its Ampari operation to its new sister operation, Peak Gold. Add to this the $555.2m that the company reported at bank in its recent 2006 year end report, and it adds up to $1.34Bn; a nice wedge of cash.

Below we can see in graph form the cash at bank held by GG at each reporting year end, and the present amount in its coffers. It is clear that this amount of cash is unusual for the company.

Given the aggressive acquisition tradition at the company, we would not be at all surprised to hear news of it moving to buy out another precious metals name in the near future. Or looked at from another angle, we see no reason for an unhedged precious metals miner with low net debt and a positive outlook for the price of gold going forward to hold so much ready cash for a long period of time.

While always difficult to second-guess M+A moves by the “big boys”, the buyout profile that fits best in our view would be a junior miner with large reserves. We will stop short of naming names, but can imagine a shortlist of 5 to 6 companies spread over the world of mining that would fit the bill. However it would seem apt to mention at this point that the job title of your author is ‘Latin America equities analyst’.

Comments

[banana638:]

Please give us the names of the short list of possible acquisiition candidates.

Thanks

2007 Apr 17 08:34 PM