Goldcorp to Sell Its Stake in Primero Mining
On Wednesday we learned that Goldcorp (NYSE:GG) is planning on selling its 19.8 percent stake in Primero Mining (NYSE:PPP) in a secondary offering. While trading in Primero shares were halted, it is very likely that this announcement is going to have a negative impact on the market value of Primero shares, as it means that the supply of Primero shares on the open market will increase by nearly 25 percent.
I think investors who follow the gold mining sector can take away several points from this announcement.
First, Goldcorp is only going to realize about $224 million Canadian collars from this transaction, which is minimal compared to its $22 billion market capitalization. One has to wonder what possessed Goldcorp’s management to do this. CEO Chuck Jeannes claims that the sale is a part of the company’s larger plan to optimize its portfolio. While this is somewhat vague, I take this to mean that the company wants to own fewer assets so that its portfolio is easier to manage. This would fit in with the company’s sale of its stake in the Marigold gold in Nevada several weeks ago to Silver Standard.
Ultimately I think Goldcorp is looking for a large mine to acquire, and this sale will help management retain the capital it needs in order to execute a larger transaction. This belief is reflected in the company’s recent attempt to acquire Osisko Mining (OTCMKTS:OSKFF) for that company’s large Canadian Malartic mine. Therefore, given this transaction and what it seems to imply, investors might want to look to buy a company that could be a potential takeover target for Goldcorp. Look for a company with a large mine that will produce a lot of gold for many years at a low cost.