The new head of Goldcorp Inc. says the world's largest gold company by market value plans to look beyond the Americas for opportunities to expand.
Goldcorp has counted its relatively small global footprint as a strength. But as the Vancouver-based gold producer finds fewer opportunities close to home, it's time to cast a wider net, David Garofalo, the company's incoming chief executive officer, said in an interview in Bloomberg's Toronto office.
"If there's anybody who's positioned to take on a little more political risk, it's Goldcorp, given its premium market cap relative to our competitors," Garofalo, 50, said on Monday. "There are some jurisdictions within Africa that might make some sense and Europe, Eastern Europe in particular."
The company would still plan to invest "at the lower end of the political risk spectrum," he said.
Goldcorp announced Dec. 4 that Chuck Jeannes will retire as CEO in April. Garofalo began working for the company in January to ensure a smooth transition. He's worked in the natural– resources sector for decades, including at Agnico Eagle Mines Ltd. and Inmet Mining Corp., and had served as CEO of HudBay Minerals Inc. since 2010.
"We're very aligned in terms of our management approach," Garofalo said of his predecessor, adding that he plans to continue Jeannes's strategy of improving Goldcorp's mine portfolio with acquisitions while shedding higher-cost, smaller– scale assets. "There are probably a few assets within the Goldcorp portfolio that don't move the needle." The company also is open to more joint ventures. In August, it struck a deal with Vancouver's Teck Resources Ltd., to combine two copper-gold projects in Chile.
Goldcorp's priority will continue to be operating large , low-cost mines, ideally capable of producing 500,000 ounces of gold a year, he said. The company has no intention of wading into high-risk political zones, such as Russia or China but Garofalo repeatedly mentioned Africa as attractive.
"There are some good investment grade countries within Africa that would look quite good in our portfolio, assuming the quality of the asset," he said. The company would consider both operating and development stage mines, although he said the latter offer the best value currently. Goldcorp wouldn't consider selling streams on its mines to build up its war chest.
The price of gold is unlikely to improve significantly until the market believes the U.S. Federal Reserve's bias has reversed in favor of lower rates, Garofalo said. "What will underpin gold will be a change in the tightening cycle to one where monetary policy is being eased again which I think is probably several years away," he said. "We might see $1,000 before we see $1,500," referring to the price per ounce.
Gold for immediate delivery fell 0.5 per cent $1,098.85 an ounce at 12:20 p.m. on Monday in New York, according to Bloomberg generic pricing. Bullion, which has declined for three consecutive years, has risen 3.6 per cent so far in 2016.
Goldcorp shares fell 4.7 per cent compared with a 2.9 per cent drop in the Standard & Poor's/TSX Global Gold Index. The company's shares have dropped 32 per cent in the past 12 months versus a 21 per cent decline in the index over the same time frame.
Gold miners are in the process of recalculating reserves based on gold at $1100, rather than the $1200 figure that was more prevalent in 2015 and reserves will likely be lowered industry-wide, Garofalo said.
He declined to give guidance for Goldcorp and said the company won't release full year production numbers ahead of its fourth quarter results this year, as it has done in the past. He reiterated that the company's portfolio of mines and strong balance sheet leave it well positioned to weather the downturn. The company is due to report on Feb. 25.
"I think it's extremely well positioned to generate free cash flow even in a thousand dollar gold price environment," Garofalo said.