TORONTO (Reuters) - Canadian miner Goldcorp (G.TO) would consider acquiring early stage gold projects to boost its reserve base, but the country’s second largest gold miner has no real interest in buying producing assets that generate little value for its shareholders, Chief Executive Chuck Jeannes said on Tuesday.
“It is very hard to add significant value for your own shareholders when you buy a producing asset,” said Jeannes. “You are just usually trading dollars for future production.”
Vancouver-based Goldcorp, which is already on-track to boost its production by 70 percent over the next few years, has been touted by some bankers and analysts as a potential acquirer of Kinross Gold (K.TO) and Agnico-Eagle (AEM.TO), two of its smaller rivals that have seen their share prices tumble in the face of major operational setbacks at certain mines.
Jeannes, who declined to comment on the speculation, argued that Goldcorp would rather buy an early stage asset, grow it through exploration and build it.
“All of the value that gets created through this process, I want for our shareholders, rather than having someone else achieve all that value,” he said, while speaking at the Reuters Mining Summit in Toronto.
“We don’t see that the pendulum has swung to where it makes sense to buy production rather than to buy development assets, you just have to be careful to buy the right development asset.”
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Graphic on asset performance in 2011:
Graphic on asset performance in 2012:
Jeannes cited Goldcorp’s C$3.6 billion acquisition of Andean Resources in 2010, as the kind of deal the company favors. In that instance the company acquired Andean’s Cerro Negro gold-silver project in Argentina, which had 2.5 million ounces of gold and 23.6 million ounces of silver resources at the time.
As of December 31, Goldcorp’s exploration program at the site had boosted the size of its gold resources to over 5 million ounces and silver resources to over 40 million ounces. The mine is set to begin production in the second half of next year.
“What we try to do, when we acquire assets, is to acquire things that are very young in their life cycle, so that they have significant opportunity for growth going forward,” said Jeannes, who himself joined Goldcorp through its merger with Glamis back in 2006.
Goldcorp, last month, announced that it had boosted its gold reserves by 8 percent to 64.7 million ounces. The miner’s eighth consecutive annual increase in gold reserves.
Jeannes said the company intends to keep the momentum going by further exploration at its own assets, along with takeovers of attractively priced early-stage assets.
The company, which produced about 2.5 million ounces of gold in 2011, is well set to boost output to 4.2 million ounces by 2016, said Jeannes.
Goldcorp currently has a number of assets in development, these include Cerro Negro, its Cochenour and Éléonore projects in Canada, and its Pueblo Viejo joint venture in the Dominican Republic, being developed in partnership with the world’s top gold miner Barrick Gold (ABX.TO).
“We’ve worked very hard to put ourselves in a position today to have a great growth profile from things we already own,” said Jeannes, adding that work on all the projects is going well.
Jeannes also said that both its output and costs to date are tracking in-line with full year forecasts. Goldcorp, last month, said it expects to produce 2.6 million ounces in 2012, at total costs of between $550 to $600 per ounce of gold.
“We are not pressed to go buy anything, we have the luxury if you will, of being very opportunistic and not having to rush to make any acquisitions,” he said, adding that the company is more likely to use cash rather than shares, as currency, when it does decide to do a deal next.
Goldcorp has about $1.8 billion in the bank and $2 billion in undrawn credit facilities, along with the lowest debt-to-equity ratio of any of its peers, said Jeannes.
“Given that circumstance, I think it makes more sense to use cash, if we were to do something going forward,” he said. “It would minimize the share dilution, because even though we have done well on a relative basis to our peers, on an absolute basis I think we can do a lot better.”
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Reporting By Euan Rocha; editing by Carol Bishopric