Goldcorp Sells Tahoe Shares for Nearly $1.0 Billion

GoldGoldcorp Inc. (NYSE/GG), the world’s largest producer of gold, has sold its 26% stake in Tahoe Resources Inc. (NYSE/TAHO). The Vancouver-based mining company offered 58.1 million shares at CDN$17.20 apiece, bringing the total sale to CDN$998.5 million. (Source: The Wall Street Journal, June 16, 2015.)

GMP Securities and BMO Capital Markets are the intermediaries, buying shares from Goldcorp and reselling them to investors. Despite having no claim on any profits from the sale, Tahoe shares bumped up three percent on news of the deal. (Source: The Wall Street Journal, June 16, 2015.)

Slimming Down the Business

Goldcorp’s move to divest comes during a period of weak bullion prices.

According to Goldcorp CEO and President Chuck Jeannes, “Divesting non-core assets has been instrumental to Goldcorp’s growth and consistently sound financial position, and the sale of the Tahoe position supports that strategy.” Jeannes went on to say, “Our gold production to date tracking well toward 2015 guidance, Goldcorp is positioned for growing free cash flow and financial flexibility.” (Source: Goldcorp Press Release, last accessed June 16, 2015.)

On the same day the deal was announced, Goldcorp was downgraded by the Royal Bank of Canada from “outperform” to “sector perform.”

Keeping Up the Dividends

In downgrading Goldcorp, the Royal Bank of Canada expressed concern over the company’s ability to maintain its monthly dividend commitment. They have paid out a monthly dividend since 2003, yet the recent slump in gold prices is squeezing the margins across the industry. (Source: The Wall Street Journal, June 16, 2015.)

The company posted an $87.0 million loss in the first quarter, despite rising revenue. Higher operating costs and lower-than-expected production growth were cited as the main headwinds, but the sale of Tahoe and other properties may free enough cash flow to alleviate investor fears. (Source: The Wall Street Journal, May 7, 2015.)

Investors: This Could Send Gold Prices Soaring in 2015