A Goldcorp mining operation. Gold is now trading at less than $1,100 (U.S.) an ounce, squeezing profit margins and making it difficult for Goldcorp to pay its original dividend.
Goldcorp Inc. slashed its dividend by 60 per cent, the company's latest step to bolster its balance sheet amid the rout in metal prices.
With gold deteriorating, it has become critical for miners to have the financial strength to withstand the downturn.
Earlier in the year, Goldcorp sold its stake in Tahoe Resources, sold a small Nevada project and boosted its credit facility. But with no end in sight to the commodities slump, Goldcorp made the decision to reduce its monthly dividend to 2 cents.
"It was a reaction to the steady decrease in metal prices, not just gold," Goldcorp chief executive officer Chuck Jeannes said in an interview.
Bullion has lost 40 per cent of its value over four years. It has dropped steadily this year on anticipation of the first U.S. interest rate hike in almost a decade. The precious metal is now trading at less than $1,100 (U.S.) an ounce, squeezing profit margins and making it difficult for Goldcorp to pay its original dividend.
Mr. Jeannes said there was no sense in borrowing funds just to pay the dividend. "We tried to get out in front it," he said.
The dip to less than $1,100 an ounce has scared the gold industry. Analysts have predicted mine suspensions and closings if gold stays at or below this level.
Mr. Jeannes said Goldcorp is prepared for a lower gold price. "If we went below $1,000, there would be some pretty drastic action you could take to shut down projects, shut down portions of mines or even shut down whole mines. I don't think we will get to that point, but we have to be prepared for any eventuality and we are," he said.
The Vancouver-based company, the world's largest gold miner by market capitalization, is one of the healthiest in the industry. But it has not been immune to the weak prices. Its stock is down 26 per cent this year to $16.40 (Canadian) a share.
For the three months ended in June, Goldcorp's profit more than doubled due to the Tahoe stock sale. The company earned $392-million (U.S.), or 47 cents a share, compared with a profit of $181-million, or 22 cents a share, a year ago.
Excluding the Tahoe windfall, Goldcorp earned $65-million, or 8 cents a share. That was 1 cent higher than analysts' expectations but lower than the previous year because of the lower bullion price and expenses associated with building new mines.
Goldcorp expects to spend between $850 and $900 to produce an ounce of gold this year, less than its previous forecast of between $875 and $950. Unlike much of the industry, Goldcorp refrained from making expensive acquisitions during the commodity boom. That has allowed the miner to expand operations at a time when some of its peers are suspending projects and selling assets to survive.
Goldcorp's new mines in Quebec and Argentina helped boost production by 40 per cent to 908,000 ounces of gold in the quarter.
Similarly, Agnico Eagle Mines Ltd. was disciplined during the commodities bull market. The mid-tier miner is also expanding its operations instead of selling assets to improve its balance sheet.
"We have increased our spending on exploration and at the same time we have been able to lower our debt in the first half of the year," Agnico CEO Sean Boyd said in an interview.
Agnico expects to spend less than $900 to produce an ounce of gold this year.
Goldcorp (G)
Close: $16.46, down 23¢