Why You Should Buy Goldcorp Inc. After Its Latest Move

Goldcorp Inc’s (TSX:G)(NYSE:GG) latest acquisition is a clear sign of strength.

| More on:
The Motley Fool

Last Monday, Goldcorp Inc. (TSX:G)(NYSE:GG) gave everyone a fresh reminder why it is Canada’s best-in-class gold producer.

The company announced a $526 million takeover of Probe Mines Ltd. (TSXV:PRB). The transaction will be paid for entirely with Goldcorp shares. In response, Probe shares jumped 49%.

But more importantly, this is a great move for Goldcorp. Below we take a look why, and then examine whether you should buy Goldcorp.

A great buy

When looking at the numbers, Goldcorp clearly got a great deal for Probe Mines. First of all, Goldcorp gets access to 1.6 million ounces of indicated resources, 0.4 million ounces of inferred resources, and various land holdings. Even though Probe’s main asset — the Borden Gold Project — is not yet producing, it seems to be well worth the purchase price.

Better yet, the Borden project is located right next to Goldcorp’s Porcupine operation. This will allow Goldcorp to use existing processing facilities at Borden, allowing the company to halve development costs.

This is a very small deal for Goldcorp, a company valued at over $20 billion. But every little bit counts.

The flexibility

This transaction highlights one of Goldcorp’s main advantages: the ability to make an acquisition without angering its shareholders. It’s a luxury that other producers don’t enjoy, thanks to reckless spending in past years.

For that very reason, this is a perfect time to be a buyer. With so many sellers like Probe, and so many companies refusing to buy, this is clearly a buyer’s market. So Goldcorp’s past prudence is a big advantage today.

One cause for concern

Relative to other gold producers, Goldcorp has a very clean balance sheet. It easily could have funded part of the transaction in cash, perhaps by borrowing some more money. But it did not do that. Instead, the company was willing to pay for the transaction entirely with shares. This sends a signal that Goldcorp’s shares are expensive, and management knows it.

So should you buy shares of Goldcorp?

There’s no denying that Goldcorp is a pricey stock. But the company has earned this premium, thanks to its strong track record. The company is also very well-positioned in today’s marketplace, where acquisition opportunities are plentiful.

And when it comes to mining companies, it’s very important to pick companies with a strong track record, even if it means paying a little more. After all, this is an industry where value is created and destroyed very quickly. If you don’t pick the right management team, your money can fly out the window.

So with that in mind, Goldcorp is still a great way to bet on the gold price.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Benjamin Sinclair has no position in any stocks mentioned.

More on Metals and Mining Stocks

construction workers talk on the job site
Metals and Mining Stocks

3 Top Materials Sector Stocks for Canadian Investors in 2025

These three materials stocks can be excellent bets to consider for long-term investors.

Read more »

Investor wonders if it's safe to buy stocks now
Metals and Mining Stocks

Billionaires Are Selling D-Wave Quantum and Picking Up This TSX Stock Instead

TSX mining stock Lundin Mining (TSX:LUN) is attracting billionaire-backed confidence.

Read more »

Safety helmets and gloves hang from a rack on a mining site.
Metals and Mining Stocks

What to Know About Canadian Mining Stocks for 2025

Several factors, including global economic stability and trade policies, could play an important role in driving Canadian mining stocks in…

Read more »

top TSX stocks to buy
Metals and Mining Stocks

Trump’s Tariffs: 2 Canadian Stocks That Could Explode in 2025

These two Canadian stocks may not just do well; they could explode under Trump's tariffs.

Read more »

todder holds a gold bar
Metals and Mining Stocks

2 Ways to Bet on Gold if Precious Metals Surge

Agnico Eagle Mines (TSX:AEM) and another shining gold stock to buy for the year.

Read more »

Rocket lift off through the clouds
Stocks for Beginners

1 Canadian Stock Set to Skyrocket as Trump’s Trade War Heats Up

This one Canadian stock is set to skyrocket, even amidst US tariffs.

Read more »

Pile of Canadian dollar bills in various denominations
Metals and Mining Stocks

How Investors Should Think About the Drop in the Canadian Dollar

The Canadian dollar has dropped to a 21-year low against the U.S. dollar. Is there an investment opportunity?  

Read more »

nugget gold
Metals and Mining Stocks

Is Kinross Gold Stock a Good Buy?

Gold stocks in general might be a good buy, but what about this top stock?

Read more »