Dan... Hmmm -- somehow I missed that news on GG - thanks. I was very tempted to sell some of it today, but not only does the dividend hold down the shorts but it is attractive enough to keep long term bulls like me from selling just to take some profits and try to reposition. GG was the first gold stock I bought and may end up being the last one I sell, especially if they continue raising the dividend (now a monthly dividend, no less) and reverse hedging. -------------------------------------------------------------
Caradoc for sure goldcorp is one of the bluest of the blue chips. ===============================================================
Tom, And one of the smartest as well. To my knowledge, the only Au producer to believe in the inevitability of a rising PoG strongly enough to back their play through reverse hedging a decent % of their production in addition to the sizable quantities they bot on the spot market in January around the $325 area. In my view, not the biggest, but surely the bluest of them all.
Pretty good idea by the Goldcorp braintrust (prolly McEwen). Responsibility for paying the monthly dividend makes GG shares somewhat less attractive for shorting purposes. ===============================================================
Goldcorp's too hasty Placer Dome profit?
By: Tim Wood 2003/10/24 Fri 14:16 EDT
NEW YORK -- In the middle of last year we noted the obvious – Placer Dome [PDG] was cheap and ripe for raiding at its price of a little over $8 on the NYSE. Others thought so too and it was later revealed that even as we were writing, Goldcorp [GG] was spending $121 million, half its cash at the time, buying Placer stock as a precursor to a takeover.
At the time, we mooted an asset strip of Placer, citing any number of companies that might be willing to pick the carcass clean of whatever the facilitating raider was willing to leave behind. In the case of Goldcorp, its ‘take’ might have been the Campbell mine it so coveted before resorting to sinking a new shaft at Red Lake, and possibly also the Musselwhite mine.
There was no raid or asset strip, and Goldcorp flipped the Placer position it had accumulated – believed to be 3.5% of issued stock at the time – for handsome profit. Reportedly, company insiders thought going all the way threatened a discount because of Placer’s hedge book and sunset mines. At the same time, issuing stock to buy assets only to sell them for cash is not necessarily cheap.
Placer has almost doubled in value since its lows last August, suggesting that patience may have been a better virtue for Goldcorp even if it didn’t want to go through with the raid. In a further irony, not only have Placer and Goldcorp correlated strongly for much of the past year, but Placer is the superior stock over one year or six months.
Comparisons can be odious though and now we see Goldcorp attacking successive 52-week highs since announcing impressive high grade zone intercepts at depth in late September.
A favour
So Goldcorp chief executive Rob McEwen, unwittingly, did his company and all Placer longs a huge favour. With the perfect science of hindsight and in the fullness of a year’s higher gold prices, it is apparent that the whole of Placer is again worth more than its parts, hedge book and all.
Assuming that Placer’s bits would have been auctioned off, it is unlikely that Goldcorp would have received full value for Campbell and Musselwhite. In fact, they would probably have been discounted leaving Goldcorp devoting considerable energy to defending comparisons of those assets with Red Lake, which RBC analyst, Joe Hamilton, quips is “a real gold mine”; a compliment insofar as the mine is a geological derivative on a money printing press.
At the time, the market had not yet gleaned Placer’s imminent good fortune – rich gold strikes at the secretive ET Blue site and the well publicised Cortez Hills project that will breathe new life into the Cortez joint venture. At the same time Placer’s project pipeline has become increasingly attractive at higher gold prices. Difficult projects, yes, but also multimillion ounce opportunities that will contribute to Placer boasting one of the strongest improvements in mineral resources for 2003, which option values will be significant.
Those benefits would have flowed principally to other players in the asset strip, especially Newmont [NEM] which was best placed to be a raid facilitator whilst snagging assets close to its Nevada flagships. However, Barrick [ABX] was probably better placed from a timing and capacity point of view as Newmont hunkered over the Normandy-Franco acquisition.
If there was no immediate accretion for Goldcorp, then it might have created a marketing problem – so far, everything McEwen has touched in the gold business has turned to platinum. Why fiddle with the aura? (As one wag noted on Mineweb, McEwen can throw Maples Leaf gold coins down the Red Lake shaft and generate a profit since gold there is more valuable coming up than going down).(dan's bolding LOL!)
Similarly, holding on to even that size Placer stake would have been awkward for Goldcorp since it hates the market having intelligence on its portfolio investments and strategic thinking. There was simply no reason to hang an unwieldy attention magnet to Goldcorp when it would rather be talking about other things.
New signals
Meanwhile, new signals emanate from the world’s tenth most valuable gold stock by market capitalisation ($2.8-bn) and the most valuable in that group by capitalisation to reserve ounce ($499/oz).
First of all, Goldcorp has apparently sold a good chunk of its equity stakes, mostly in exploration companies. The company has said it would like to build positions in strategic projects, but not at any cost – the third quarter sell-down was Goldcorp’s signal that profits were irresistible.
We will never know the precise trades, but the general multiples that triggered the sales should be bookmarked for future reference.
Secondly, Goldcorp is goosing the market to understand that Red Lake cannot be replicated. When there is an acquisition, the producing assets will carry higher costs than Red Lake, raising the company’s overall cost profile.
McEwen signalled at Denver that he is comfortable with that since Red Lake’s costs (once you amortize them across all ounces, not just sold ones) are so low that it should still anchor a lowest quartile level for an enlarged group. Even then, Goldcorp could get rid of its expensive Wharf mine to ease the numbers down, just as Meridian Gold [MDG] achieved so dramatically with the sale of its minority stake in Jerritt Canyon to Queenstake [QRL].
Good news fatigue
If Goldcorp has a problem, it is a lack of news. Part of the art of keeping investors attentive is to put new things in front of them, otherwise there’s an appreciable risk of fatigue.
Each Goldcorp quarter is monotonously profitable; a steady fountain of cash, some of it deferred into bullion for defence against the strong Canadian dollar and the country’s enthusiastic tax collectors, some for expansion, some to the bank, more for shareholders.
Indeed, the move to a monthly dividend and the increasing cover constitutes major company news for Goldcorp at the moment. And you can only say so much about a high yield, being unhedged, having no debt, enjoying a secular bull market in gold and being an intermediate stock before it becomes stale. Goldcorp’s views on the gold market and stock segmentation have been thoroughly vindicated, but everyone knows that, including the companies copying the message.
Investors like ‘angle’, and Goldcorp is a news and event driven phenomenon; attention seeking if you must, but fully focused on maintaining a prize rating. That suggests the market won’t have long to wait for the next big thing from an intermediate gold stock that has put one billion dollars distance between it and it’s nearest class rival.
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