Breaking News
0

Goldcorp And Exposure That Come With Gold Mining Shares

By The Gold Report CommoditiesMar 14, 2019 02:37AM ET
www.investing.com/analysis/goldcorp-disgrace-no-wonder-investors-steer-clear-of-the-sector-200397539
Goldcorp And Exposure That Come With Gold Mining Shares
By The Gold Report   |  Mar 14, 2019 02:37AM ET
Saved. See Saved Items.
This article has already been saved in your Saved Items
 

Money manager Adrian Day reviews the latest developments in the Goldcorp acquisition saga, noting as the story unfolds, insiders quietly line their pockets.

Newmont Mining Corp. (NYSE:NEM) is proceeding with its bid to acquire Goldcorp Inc (NYSE:GG) after Barrick Gold Corp (NYSE:GOLD) made an unfriendly bid for Newmont Mining Corporation (NYSE:NEM). Barrick, which only recently acquired Randgold (LON:RRS) to vault to #1 in the rankings of largest gold companies in the world, launched the bid after talks to merge its and Newmont's Nevada assets—talks which have been on and off again for the past 20 years—failed, and Newmont bid for Goldcorp. Barrick has made it plain it does not want Goldcorp, hence the timing of its bid. It is also possible that the hostile move is an attempt to focus Newmont's mind on a meaningful alliance of their Nevada assets on Barrick's terms.

Goldcorp, as its detractors mockingly call it, agreed to sell itself at a measly premium at a time when its stock was trading at a price not seen since early 2002. We are still holding Goldcorp because if the merger with Newmont succeeds, the stock should see a bounce. It has already jumped from the $9.70 price at the time of the bid, and in a good gold market, the combined company should see investor interest. As a standalone company, Goldcorp continues to offer mediocre returns. In the latest quarter, EBITDA (earnings before interest, taxes, depreciation and amortization) was down, despite the higher gold price, largely on high G&A (general and administrative) costs.

Barrick and Newmont have synergies, while Goldcorp offers none
However, a Barrick-Newmont merger is clearly the superior move, given the tremendous and real synergies that exist in such a hook-up, mostly, but not only, in Nevada. Barrick estimates cost savings of $7.1 billion over the next two decades, with just under $5 billion from Nevada. There are simply no real synergies in a Newmont-Goldcorp merger, one of the reasons analysts have been lukewarm. Initially, Newmont estimated costs savings from a merger of $100 million, and after analysts called this a "rounding error" for a company of that size, Newmont said that after looking more carefully, they think they can save $200 million. Excuse me for being skeptical, but this nice big round number hardly gives the appearance that a sharp pencil has been used in this exercise.

So, either Barrick will gain control of Newmont—not as unlikely as many seem to think, given that Barrick's key shareholders also own large positions in Newmont—leaving Goldcorp at the altar, or Newmont will acquire Goldcorp, leaving Barrick with the option to continue with its hostile bid, but of the combined company.

Large payments
In the meantime, Goldcorp insiders are making sure they gain big-time if the acquisition goes through. We have already discussed that, according to the Shareholders' Gold Council, failed CEO David Garofalo could receive as much as CA$11 million in payments, in addition to his bloated salary, while shareholders have lost 26% during his watch. Let me be clear: I understand executives joining a company may want some security. I also have no problem with rainmakers being well rewarded, but for success and not for failure.

Now the information circular supporting the Newmont bid, released Thursday, shows that another 25 officers of Goldcorp will receive change-of-control payments. The company estimates these will total over $33 million, not counting freebie stock and options.

Reward for a job well done?
But grossest of all is a "lump sum payment retirement allowance" made to chairman Ian Telfer. "In contemplation of the Arrangement (to be acquired)," Telfer and the company agreed to almost triple his payment from $4.5 million to $12 million (U.S. dollars). The rational is that when the payment was approved in 2006, it was not indexed to inflation. The circulate blithely notes that "other than his salary and (annual freebie shares) Mr. Telfer did not receive any other benefits from Goldcorp." My heart goes out to him.

Since 2006, shareholders have lost two-thirds of their investment. Shareholders' investments were not indexed to inflation. And other than a miniscule dividend (less than 1%), shareholders have "received no benefit" from Goldcorp, either.

To triple Telfer's payment right before the acquisition is one slap in the face too many, an insult to shareholders. We intend to vote against the merger with Newmont if this payment is not rescinded. We have no voice in these payments, so this is our only way to make our position clear.

Shareholders vote with the money
Is it any wonder that generalist investors look at this space and steer clear, seeing these shenanigans against a background of stock prices lower today than at the beginning of the bull market, despite a quintupling in the gold price? Twenty years ago, hardly a generalist fund—small cap, large cap, value or growth—did not have exposure to gold mining shares. Today, hardly any does. Is it any wonder?

Disclosure:
1) Adrian Day: I, or members of my immediate household or family, own shares of the following companies mentioned in this article: None. I personally am, or members of my immediate household or family are, paid by the following companies mentioned in this article: None. My company has a financial relationship with the following companies mentioned in this article: None. Funds controlled by Adrian Day Asset Management hold shares of the following companies mentioned in this article: Goldcorp and Newmont. I determined which companies would be included in this article based on my research and understanding of the sector.

2) The following companies mentioned in this article are billboard sponsors of Streetwise Reports: None. Click here for important disclosures about sponsor fees. The information provided above is for informational purposes only and is not a recommendation to buy or sell any security.

3) Statements and opinions expressed are the opinions of the author and not of Streetwise Reports or its officers. The author is wholly responsible for the validity of the statements. The author was not paid by Streetwise Reports for this article. Streetwise Reports was not paid by the author to publish or syndicate this article. Streetwise Reports requires contributing authors to disclose any shareholdings in, or economic relationships with, companies that they write about. Streetwise Reports relies upon the authors to accurately provide this information and Streetwise Reports has no means of verifying its accuracy.

4) This article does not constitute investment advice. Each reader is encouraged to consult with his or her individual financial professional and any action a reader takes as a result of information presented here is his or her own responsibility. By opening this page, each reader accepts and agrees to Streetwise Reports' terms of use and full legal disclaimer. This article is not a solicitation for investment. Streetwise Reports does not render general or specific investment advice and the information on Streetwise Reports should not be considered a recommendation to buy or sell any security. Streetwise Reports does not endorse or recommend the business, products, services or securities of any company mentioned on Streetwise Reports.

5) From time to time, Streetwise Reports and its directors, officers, employees or members of their families, as well as persons interviewed for articles and interviews on the site, may have a long or short position in securities mentioned. Directors, officers, employees or members of their immediate families are prohibited from making purchases and/or sales of those securities in the open market or otherwise from the time of the interview or the decision to write an article until three business days after the publication of the interview or article. The foregoing prohibition does not apply to articles that in substance only restate previously published company releases. As of the date of this article, officers and/or employees of Streetwise Reports (including members of their household) own securities of Goldcorp, a company mentioned in this article.

Goldcorp And Exposure That Come With Gold Mining Shares
 
Goldcorp And Exposure That Come With Gold Mining Shares

Add a Comment

Comment Guidelines

We encourage you to use comments to engage with users, share your perspective and ask questions of authors and each other. However, in order to maintain the high level of discourse we’ve all come to value and expect, please keep the following criteria in mind: 

  • Enrich the conversation
  • Stay focused and on track. Only post material that’s relevant to the topic being discussed.
  • Be respectful. Even negative opinions can be framed positively and diplomatically.
  •  Use standard writing style. Include punctuation and upper and lower cases.
  • NOTE: Spam and/or promotional messages and links within a comment will be removed
  • Avoid profanity, slander or personal attacks directed at an author or another user.
  • Don’t Monopolize the Conversation. We appreciate passion and conviction, but we also believe strongly in giving everyone a chance to air their thoughts. Therefore, in addition to civil interaction, we expect commenters to offer their opinions succinctly and thoughtfully, but not so repeatedly that others are annoyed or offended. If we receive complaints about individuals who take over a thread or forum, we reserve the right to ban them from the site, without recourse.
  • Only English comments will be allowed.

Perpetrators of spam or abuse will be deleted from the site and prohibited from future registration at Investing.com’s discretion.

Write your thoughts here
 
Are you sure you want to delete this chart?
 
Post
Post also to:
 
Replace the attached chart with a new chart ?
1000
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Thanks for your comment. Please note that all comments are pending until approved by our moderators. It may therefore take some time before it appears on our website.
 
Are you sure you want to delete this chart?
 
Post
 
Replace the attached chart with a new chart ?
1000
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Add Chart to Comment
Confirm Block

Are you sure you want to block %USER_NAME%?

By doing so, you and %USER_NAME% will not be able to see any of each other's Investing.com's posts.

%USER_NAME% was successfully added to your Block List

Since you’ve just unblocked this person, you must wait 48 hours before renewing the block.

Report this comment

I feel that this comment is:

Comment flagged

Thank You!

Your report has been sent to our moderators for review
Disclaimer: Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. All CFDs (stocks, indexes, futures) and Forex prices are not provided by exchanges but rather by market makers, and so prices may not be accurate and may differ from the actual market price, meaning prices are indicative and not appropriate for trading purposes. Therefore Fusion Media doesn`t bear any responsibility for any trading losses you might incur as a result of using this data.

Fusion Media or anyone involved with Fusion Media will not accept any liability for loss or damage as a result of reliance on the information including data, quotes, charts and buy/sell signals contained within this website. Please be fully informed regarding the risks and costs associated with trading the financial markets, it is one of the riskiest investment forms possible.
Continue with Google
or
Sign up with Email