Goldcorp Inc. (G), the Canadian producer starting up three new mines to boost output 50 percent, says there’s such a thing as too much gold.
The largest producer by market value, which expects annual output to reach as much as 4 million ounces by 2016, would prefer to fine-tune its mining assets to increase profitability than just keep growing to a point where it’s difficult to replace reserves, Chief Executive Officer Chuck Jeannes said.
“That means constantly trying to add high-quality things and, as we do that, dispose of the non-core things,” Jeannes said in an interview this week at the annual Denver Gold Forum. “We don’t want to be 7 or 8 million ounces.”
While Goldcorp has pressed ahead with expansion in the past year, other large producers have suspended projects, sold mines and curbed output as the industry grapples with faltering metal prices. Barrick Gold Corp. (ABX), the biggest by sales, has forecast 2014 output of 6 million to 6.5 million ounces this year, which would be the lowest in nine years, according to data compiled by Bloomberg. Barrick’s output peaked at 8.64 million ounces in 2006, the data show.
Jeannes’ view on future growth is “good to hear,” said Chris Mancini, an analyst for the Gabelli Gold Fund, which has about $260 million under management, including Goldcorp shares.
‘Growth’s Sake’
“It was growth for growth’s sake that was so damaging to the industry during the upturn in the gold price,” he said in an e-mail yesterday. Goldcorp should focus on building “quality” projects with good returns on investment and increasing dividends, Mancini said.
Goldcorp, which has a larger market value than Barrick despite producing less than half the gold, also has the highest price relative to earnings before interest, taxes, depreciation and amortization among the world’s biggest producers of the precious metal, according to data compiled by Bloomberg.
Getting too big can lead to future missteps by producers, Jorge Beristain, a Greenwich, Connecticut-based analyst at Deutsche Bank AG, said in a phone interview last week.
“At a certain point you become a bit like a rat on a treadmill if you’re too large of a gold company, and then you have to keep making those acquisitions and growing through large projects,” Beristain said in a phone interview.
Biggest Plunge
Gold rose more than sixfold during a 12-year bull run through 2012. That ended when futures plunged 28 percent last year on the Comex in New York, the biggest drop in more than three decades. The metal fell 1.3 percent to $1,219 at 9:55 a.m.
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