VANCOUVER (miningweekly.com) – For larger gold producers to generate increasing returns for shareholders, the key is not just discovering and acquiring new deposits – some existing assets will need to be dropped along the way, says Goldcorp CEO Chuck Jeannes.
“I'm a believer in the Jack Welch theory of portfolio management, that says as you add new high-quality assets, you should look to dispose of assets of lesser-quality, higher-cost, shorter mine life,” he said in an interview at the company's Vancouver headquarters.
“And I don't think the industry has been particularly good at selling assets in the past.”
Goldcorp sold its Peak and Ampari mines two years ago, and swapped its interest in the La Coipa mine, in Chile, with Kinross, for full ownership of some Canadian assets the two held in joint venture.
The strategy has worked out well and will be something the company will continue going forward.
Jeannes said he often gets asked by analysts and investors how the group will avoid the problems “that others in the sector have”, of reaching a point where growth becomes difficult.
“And my responses are twofold: first, growth doesn't have to be just in ounces. I think we can grow our portfolio – the value of our portfolio - without necessarily increasing the number of ounces we are producing," he said.
Secondly, it is not a problem the company expects to run up against any time soon.
Goldcorp's current plans are to increase production 50%, to 3,5-million ounces, over the next five years.
“And if we continue to grow from there at a compound annual growth rate of 5%, you don't get to five-million ounces until 2017," Jeannes continued.
“So, my message to our shareholders is that this is not a problem where we have to do something dramatic today to avoid.”
When it comes to adding new projects into the pipeline, Jeannes said he preferred to leave grassroots exploration and discovery to juniors.
“As a general rule, my experience has been that companies that rely on exploration alone for growth over the long term have not been successful in doing that.
"Goldcorp will do limited exploration internally, but focuses most of its own efforts on mine-site exploration.
“And then we look to the juniors to be very efficient in going out to spend high-risk dollars in going out to make discoveries and then we follow their progress very closely and, when the time is right, move to gain control of those deposits.”
There are, however, some occasions where a junior captures the market's attention and becomes too expensive, he added.
“We've always been disciplined in what we are willing to pay and we've walked away from things in the past that the market never even knew about.”
LARGE DEPOSITS, LOW RISK
As far as potential acquisitions are concerned, Jeannes has a clear idea of what sort of target he is looking for.
To begin with, just because an asset is going cheaply, does not mean Goldcorp will be interested.
“We trade at a reasonable value, and on occasion you can look at a number of assets out there and say, if it's just about value, we can acquire these assets and have it be accretive to our shareholders.
“But we are not looking to become a company with just a bunch of mediocre assets spread around.
“We want them to be high-quality, big, long-lifed, the right metal, good jurisdictions, low cost and, yes, obviously accretive to our shareholders,” Jeannes said.
How big is big? “Large enough to be meaningful,” he said.
“It's trite to say, but we do always want our next deal to be bigger and better than the last one.
"But, of course, when you have a mine like Penasquito [Goldcorp's new gold/silver/lead/zinc mine nearing completion in Mexico] that limits the world a bit.”
Despite the silver and base-metals at Penasquito, Goldcorp remains very strongly a primary gold producer, although Jeannes concedes that the mix may change in the future.
“We have to consider other metals. If we were so strident in our views to be nothing but a gold company we would have missed Penasquito, which is a great deposit.
“And we also recognise that large copper/gold porphyries are an important part of our likely growth in the future. There are just not that many large primary gold deposits around.”
The company has actually also discovered would could turn out to be a world-class silver deposit, in Guatemala, with more than 200-million ounces so far.
Initial scoping has indicated that the deposit could support production of some 10-million to 12-million ounces a year of silver, which would make the asset a top-ten silver producer.
“It's a great discovery,” Jeannes said.
The company is still deciding whether it wants to develop the project or sell it to an existing silver producer.
Another option could be to spin the project out and create an new primary silver producer.