After shocking investors with a multibillion-dollar loss, Goldcorp Inc. is telling disgruntled shareholders to be patient as the gold producer prepares for a shift in leadership next week.
The Vancouver-based miner slashed its dividend while delivering ugly results and underwhelming guidance after markets closed Thursday. In response, its share price tumbled 13.1 per cent on Friday.
“I’m certainly aware that many shareholders are disappointed with some of the news this morning and I share their disappointment,” Chuck Jeannes, the outgoing chief executive officer, told analysts. However, he defended the dividend cut as being a realistic response to a gold price that has mostly trended lower in recent years.
Mr. Jeannes, a well-regarded executive, announced last December that he was stepping down after more than seven years as CEO. He said Friday that he was confident he was leaving the company in great hands.
His successor, David Garofalo, the former CEO of HudBay Minerals Inc., has been working closely with Mr. Jeannes for the past two months and his move into the top job, previously scheduled for April, has now been moved up to Monday.
Some analysts believe Goldcorp’s massive $4.9-billion (U.S.) writedown in the fourth quarter reflected a desire to clear the decks for Mr. Garofalo and manage down expectations. But whatever the motivation, the company’s suddenly darker outlook has taken investors by surprise.
Goldcorp’s loss of $4.3-billion or $5.14 a share for the fourth quarter was far below expectations for a small profit. The dividend cut, which slashes the annual payout to 8 cents a share from the previous 24 cents, also came as a shock.
The most stinging blow, however, might be the radical reduction in guidance. The company said it would produce 2.8 million to 3.1 million ounces of gold a year in 2016, 2017 and 2018. It had previously indicated that it was on track to produce up to 3.6 million ounces in 2016, up to 3.7 million in 2017 and up to 3.4 million in 2018.
The shortfall is partly the result of problems at the Cochenour project in Northern Ontario, where the geology has turned out to be more complicated than Goldcorp expected. Cochenour was supposed to start producing gold next year, but has now been moved back to the advanced exploration category.
Goldcorp added to that sour news by revising down its assumption for the long-term gold price, lowering it to $1,100 an ounce from $1,300 previously. It also reduced its estimate of proven and probable gold reserves by about 18 per cent.
In the past, Mr. Jeannes has been an outspoken advocate of the notion that gold’s price is inevitably headed upward as global production declines. He sounded considerably more restrained on Friday.
He explained that the dividend cut was necessary because otherwise Goldcorp would have been paying out essentially 100 per cent of its free cash flow to shareholders. Conserving cash was vital to allowing the company “to maintain financial flexibility in any gold price environment,” he said.
Mr. Garofalo earned an enviable reputation as a deal maker during his tenure at HudBay. However, he squelched speculation that he would be on the hunt for acquisitions in his new post. “Our focus is very much internally on the opportunities we have.”
Like other gold producers, Goldcorp had watched its shares soar since January in tandem with a rebound in the metal’s price. But the stock’s plunge on Friday underscored the risks that accompany the sector.
Mr. Garofalo, an accountant by training, said his focus at Goldcorp will not be about adding ounces of production but rather “the generation of free cash flow along the conceivable spectrum of metal prices.”Report Typo/Error