Goldcorp Closes Primero Shares Sale (ABX) (GG)

Goldcorp Inc. (GG) has closed its earlier announced sale of 8,422,460 shares of Primero Mining Corp. at a price of C$5.25 per share. The offering fetched aggregate gross proceeds of roughly C$44.2 million (US$45.2 million) to the Canadian gold mining giant.

Goldcorp, in September 2012, announced the sale 9% of its roughly 41% interest in Toronto-based Primero, a company engaged in the production of precious metals with operations in Mexico, to a syndicate of underwriters led by Scotiabank. Pursuant to the deal, the underwriters agreed to buy 8,422,460 common shares of Primero at a price of C$5.25 a share.

Following the stake sale, Goldcorp will now hold roughly 31,151,200 shares, representing around 32% of the outstanding shares of Primero. The shares will continue to be held by Goldcorp subject to a three year lock-up period that began on August 6, 2010. Per the agreement, Primero will not receive any proceeds from the offering.

Primero owns 100% of the San Dimas gold/silver mine in Mexico. The company, in September 2012, announced its estimated mineral resources and mineral reserves (as of June 30) for the San Dimas mine.

Primero reported that its contained gold in probable mineral reserves increased 79,000 ounces from end-2011 to 584,000 ounces. Moreover, contained gold in indicated mineral resources increased 17% over the same period to 678,000 ounces. Primero also reported contained silver in probable mineral reserves of 34.7 million ounces, indicated mineral resources of 40.6 million ounces and inferred mineral resources of 67.5 million ounces.

Goldcorp, which competes with Barrick Gold Corporation (ABX), is an unhedged producer of gold and as such, it is well positioned to gain from increase in gold prices. It enjoys a leading position in the industry and aims to attain 70% production growth by 2016.

The company has a high leverage to spot gold prices due to its completely unhedged position. This will help it to derive the maximum value due to rising gold prices in the future. Moreover, Goldcorp is one of the lowest-cost gold producers and has a strong balance sheet.

However, Goldcorp has been hit by a decline in production from the Red Lake mine. The company has reduced its gold production target for 2012 given the weak production from the Red Lake mine in the first half of the year and lower expectations from the Penasquito mine for the second half.

Goldcorp currently retains a Zacks #3 Rank, which translates into a short-term Hold rating. We have a long-term Neutral recommendation on the stock.