Continuing its canny reading of the gold market, Goldcorp (G-T) has sold off its gold hoard and plans to distribute most of the profits to its shareholders in the form of a special dividend.
Having been debt-free and a true believer in a nascent bull market for gold, Goldcorp began holding back some gold production from its rich Red Lake mine in northwestern Ontario in the third quarter of 2001, when spot gold was trading at US$274 per oz.
Just over two years later, by the end of the current third quarter, this held-back production tallied 142,913 oz. gold, or 11% of the company’s total production over this period.
As well, in 2002 and 2003, the company periodically bought gold on the open market, adding 123,817 oz. gold and bringing the total hoard to 266,730 oz., or 8.3 tonnes, of gold — a sum exceeding the Bank of Canada’s holdings by more than 30%, the company cheekily notes.
The entire hoard has now been sold off at an average price of US$388 per oz., or US$72 per oz. more than the average gold price of US$316 per oz. which would have been realized if all gold had been sold at the time of production, and US$66 per oz. more than the average price at which the other gold was purchased.
This sale has resulted in a fourth-quarter pre-tax income of US$40 million, or US$0.22 per share, which on an after-tax basis amounts to US$0.13 per share.
As a result of the windfall, Goldcorp has declared a special dividend of US$0.10 per share, payable on Jan. 13, 2004, to shareholders of record on Jan. 6. This is on top of the company’s now-monthly dividend of US$0.015 per share (US$0.18 per share annually).
With the gold-hoard profit now crystallized, Goldcorp is now forecasting both earnings growth and record earnings for 2003.
Going forward, the company says it will resume holding back about 10% of its gold production from sale.
As of Sept. 30, 2003, Goldcorp had US$331 million in working capital and no debt.
On Dec. 10, the day of the gold-sale announcement, Goldcorp shares suffered a severe bout of profit-taking along with all the other gold producers, dropping $1.29, or 5.8%, to $21.00 in Toronto, and US$0.93 to US$16.08 on the Big Board.
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