Goldcorp Strategic analysis Essays

Goldcorp Strategic analysis Essays Goldcorp Strategic analysis Essay Goldcorp Strategic analysis Essay Awake Nelson Parsonage Sang Tap Table of Contents Executive Summary The report contains the strategic plan for Colder to sustain their growth based on an in-depth analysis of their current situation and the industry in which they operating. Colder, one of the lowest cost and fastest growing gold producers in North America, is looking to find sustainable growth options that would Increase profits. They have a strong disciplined growth strategy, but there are three mines which are at the end of its lifestyle which would greatly impact the gold production rate and market supply. Competitors have begun to acquire the same targets of Colder. The Kiosk mine acquisition was lost to Gaining Eagle after an unsuccessful bidding process. Stakeholders have also begun to speculate suspicious activities within Colder that may put their reputation at risk. Recently, the company has been kicked out of Guatemala from overwhelming public protests about violations of local human rights. An unfavorable company image would create uncertainty in their stakeholders who may withdraw their funds from the company. Relations with the public have been well-executed due to community support programs that create jobs for the public. In addition to those who are hired, Colder manages the highest safety precautions for every employee to reach their operating goal of zero fatalities. Colder will implemental mill scats reprocessing project Into other mines to extract any excess steel that comes out of the gold explorations. : They will be process and refined to create a new and strong source of revenue in the sale of these materials in as the current mines are reaching the end of their useful life. Gold output is an important statistic for the company and keeping it at its peak will be critical to the success in the industry. Another way to increase the gold production and mine expansion rate is to re-launch the Colder Challenge which was implemented 14 years ago. Properties with abundant gold reserves will be identified from remote locations all over the world at the lowest cost possible highest return on investment. Within the next 5 years, Colder will be at its most successful position in its history with increasing gold production and mine expansions. Progress reports will be done secularly to ensure the company is heading towards a prosperous future. Company Presentation Colder Inc. , headquartered in Vancouver, British Columbia, is one of the lowest cost and fastest growing senior gold producers in North America. The company was founded in 1954 and employs more than 16,000 people (Colder, 2014). Colder is committed to responsible mining practices and developing sustained, industry leading growth and performance. The company is involved in the exploration, acquisition, and operation of gold properties in Canada, the United States, Mexico and Central and South America. In addition to gold, the Corporation also produces silver, copper, lead and zinc primarily from concentrate produced at the Pantsuit Mine and Lumbered Mine, which is sold to third party refineries. Goldenrods operating assets include four mines in Canada (Red Lake, Porcupine, Wharf Mushiest), one mine in the U. S. (Marigold), three mines in Mexico (Pantsuit, El Causal Los Fills), and three in Central and South America (Marlin, Lumbered, Pueblo Viejo). Along with these valuable assets, the success for company is well defined by its focus on five key attributes: growth, low cash costs, maintaining a throng balance sheet, operating in regions with low political risks and conducting business in a responsible manner. The companys strategy is to provide its shareholders, employees and business partners with sustainable prosperity with high quality assets. Colder is listed on the New York Stock Exchange (symbol: G) and the Toronto Stock Exchange. The company undergoes significant development projects some of which includes Cero Negro gold project in Argentina; the El ©Monroe and Connector gold projects in Canada; the El Morrow gold/copper project (70% interest) in Chile; and the Camino Roll gold/silver project in Mexico. On February 3, 2014, the Company announced that it had, in conjunction with its Joint venture partner, Barrack, entered into a definitive agreement to sell their respective interests in Marigold to Silver Standard Resources Inc. Internal Analysis Colder operates 11 mines throughout Canada, USA, Mexico, and South America. They produce 2. 6 million ounces of gold annually. The Red Lake Mine, Goldenrods top producer, produces over 2,400 tones per day. Despite a mid-year decrease in gold price in 2013, Colder was able to achieve its productions due to the Operating for Excellence program (Colder Inc, 2013). The program resulted in a significant efficiency and productivity gains, while maintaining a culture of safe and profitable production. Moreover, Goldenrods competitive advantage lies in the location of its mines. Goldenrods mines are exclusively located in Jurisdictions with low political risks mentioned in Appendix 2, Colder also has a strong relationship with local communities and are able to provide Jobs for them (Colder Inc, 2011). They understand the negative impacts of operating mines in the communities and were able to conduct their business that supports strong, vibrant and sustainable immunities. Colder received several accomplishments such as, safety awards in its Los Fills mine, being recognized as Canadas top 100 employers, and top 100 companies in the world in its sustainability practices (Colder Inc, 2014). One of Goldenrods strength is their disciplined growth strategy (Kramer-Miller, 2013). They have experienced a production growth of 10% per year. They further demonstrated their excellence in their growth strategy, with their development projects in Cero Negro and Lenore. These two projects are projected to increase Goldenrods production by 3. 5 million ounces annually. However, some of Goldenrods projects such as mines in Wharf, Marlin, and El Causal are nearing the end of their life cycle. They would have to address this by acquiring more assets to maintain its growth. On the other hand, Colder has a lack of stakeholder management. They received several human rights complaints in their mines in Mexico, and were kicked out of Guatemala for allegations including killings, attacks, and death threats against its opponents (Machinating Canada, 2010). Financially, Colder has a disciplined capital allocation strategy and has grown the value of its asset without assuming a lot of debt ($2. Billion in debt while having $20 billion in equity). However, Colder $2. Billion debt and a revolving credit facility of up to $2 billion has forced them to use a portion of its cash flow to service principal and interest on its debt, which limits their cash flow for other opportunities (Colder Inc, 2013). They also have a huge impairment at the Lumbered mine of over $276 million (Maintainer Index, 2014) due to changes in short term metal price assumptions. Along with declining gold prices, Colder incurred a net loss of $1. 1 billion in 2012. The analysis of the financia l statements shows that Colder had a difficult year. The large impairment that they recorded caused them to record a huge loss. While it is common for mining companies to use many estimates to determine assets, even without taking the impairment into account the financial are worse in 2013 as compared to 2012. The current ratio went down from above 2 to 1 . 1, although this shows that Colder can still pay off all its debt. In summation, Goldenrods financial while weakening are still strong enough to maintain their debt, and Colder looks to have a strong 2014 to counteract the weak results in 2013. External Analysis General Environment As mentioned in Appendix 3, in this environmental analysis of three regions, Canada, USA, and Latin America, we identified differences in the stability of governments between North America and Latin America. Refer to exhibit 1 for the full chart analysis. North America, a Senate and Congress operating under a democracy oversees Judgments made in fair and controlled environments, whereas Latin American governments are under heavy suspicions of corruption by third parties. All the regions have experienced a growth in economy; however, Canada lags behind in the end of 2012 with a disappointing growth rate of 1. Even with its title as the 10th largest economy in the world employing over 363,000 people in the mining zone known as the ring of fire. Therefore, the structure of the mines will greatly be affected and heightened safety precautions will take time and costs to deploy. Earthquake hazards will mostly affect the Western regions of the Americas, where weather patterns such as storms , droughts, and long winters will affect the working conditions. Technological developments play a big role in mining companies as they allocate a lot of resources, over $10 million into their RD departments. It is possible hat expenditures for RD will increase because the mining industry in Canada is the most technologically advanced sector. As Colder is a Canadian company, they will want to uphold their reputation and continue their innovation abilities. On the contrary, the United States focuses most on the retailing, space, and nuclear industry. Porters Five Forces As mentioned in Appendix 5, Colder is competing for dominance in the valuable metals and natural resources market. To participate in this industry, a very large amount of capital is required to operate mainly because of the technology and machinery needed. Human resource is also a big requirement to operate all the machinery and oversee the daily operations. Getting out of the industry is equally difficult because outstanding warranty or contracts must be honored. The sale of equipment or facilities which were purchased for long-term purposes might incur enormous losses if sold too soon. Competitors in the same industry generally attempt to effectively target the same clients as Colder. They are currently promoting their goods that attempt to provide higher value to gain market share. Colder has the abilities to support themselves as they are vertically integrated, supplying their own sources. This is crucial because controlling critical inputs affects a firms ability to compete and determines who will lead the industry. Colder can use strategic groups in an industry which can offer important insights to executives who can create unique strategies. Firms that follow the same strategies but differ in important ways from the members of other groups can change a firms ability to compete over time. One way of doing this is to borrow ideas from others to fit the company culture. Competitive Environment Analysis A full analysis of Goldenrods main competitors can be found in Appendix 6. We measured the process innovation, low cost structure, financial position, gold production, international expansion and location. Our analysis found that Colder Inc. Has competitive advantage in process innovation and low cost structure. Goldenrods strongest competitor is Barrack Gold. The analysis of the external environment and the factors within it shows that Colder Inc. Is fairly well suited to respond to the factors of the external environment. Appendix 6 shows an overall weighted score of 3. 91 . This illustrates an above average response rate to external factors. Matching (refer to Appendix 7 for SOOT Analysis) Goldenrods strong relationship with local communities creates local Jobs within the region. And as other miners retrench, Colder has the opportunity to acquire new mines. With this opportunity and their strength in community relations, Colder can take advantage of the community support to provide them with the HER needed for new mine acquisitions. Goldenrods disciplined capital allocation gives them the ability to spend up to $3. Billion for acquisition of new mines. This could be used to cost, and implement their innovative programs, such as the EWE. Currently, Goldenrods mines such as Wharf, Marlin, and El Causal are reaching the end of their life cycle. As gold prices are on the rise and with an opportunity to expand to foreign markets, Colder can expand to other foreign markets with large gold reserves to acqui re their new mines. Moreover, as demand for steel increases, they can implement Mill Scats Reprocessing Project (MSP) to extract steel from the mines at the end of their life cycle. This maximizes the utilization of these mines. Furthermore, Colder can use hedging strategy, to minimize the threat of gold price fluctuations. Also, as there has been an active competition in the acquisition market for lands with high reserves, re-launching the Colder challenge allows them to discover new mines with large reserves around the world. This creates new mines for the company to operate in while replacing the mines at the end of their life cycle. With the threat of tax and policy changes, Colder should acquire new mines that operate in low risk Jurisdiction to minimize these threats. Lastly, due to the lack of stakeholder management, managing stakeholder expectations about company growth and reference levels will allow stakeholders to continue to purchase stocks from Colder. Strategic Intent Goldenrods strategic intent is aimed at continuing to grow their company through increasing the efficiency of their gold production and acquiring new mines, while simultaneously maintaining the practice of gold mining responsibly and promoting the shareholder value and the health and well-being of its employees and host communities. Their mission is to be a low-cost gold producer with geographic diversification and low political risk while operating in a responsible manner with their neighbors, local communities, and the environment. In order to achieve its vision and mission, Colder has several strategic goals set to guide the company (Colder Inc, 2014): Develop meaningful and effective strategies for engaging with all stakeholders. Consult with local communities to identify effective and culturally appropriate development goals. Establish grievance mechanisms, based on international best practices. Partner with credible organizations, including non- governmental and civil society organizations. Identify and develop socio-economic opportunities that lead to sustainable prosperity in the communities and countries in which we operate. Integrate socio-economic, environmental, occupational health and safety, human rights, and governance best practices into our business processes. Make meaningful and sustainable contributions to the host countries and communities where we operate. Apart from the goals set by Colder, they also infuse several values to each individual within the organization: They believe in safe production, in which employees look out for one another in caring, acting, and thinking safely. They believe in a workplace with a safe environment and conditions for employees to work in. They believe in acting ethically, having integrity and treating people with respect, that discrimination, bribery and corruption are always wrong. They believe that doing the right thing starts from the ground up and is a state of mind not Just a set of rules. They believe in respecting all stakeholders, in building partnerships, being a team player, and treating people fairly. They believe in listening before acting, being a good neighbor, and open communication. They and taking straight from the heart. They believe in empowering others, leading by example, being a good mentor and a lifelong learner. They believe in innovation, in operating for excellence, questioning for possibilities, being resourceful, always looking for new and better ways of doing things. Leadership Colder believes in leading by example, mentoring, and taking responsibility. At Colder, although the main leadership role is played by the President and the CEO, Charles A. Jeanne, who has a broad experience in mining transactions, public and private financing, permitting and international regulations, the other senior level executives have well played the leadership role as well. Brent Burgeon, Senior Vice President of Corporate Affairs, along with his team worked together with Winding catering, First Nations owned and operated business in the community, to build Windings capacity. With the increased capacity, Winding is now prospering and expanding in the other areas of the province. Also under the leadership of Brent Burgeon, the company partnered with several government organizations to help run a natural gas pipeline up to Airedale to reduce greenhouse gas emissions. This will make cleaner, more efficient natural gas energy available to the local communities. In order to achieve operational excellence, Colder operates numerous programs including technical skills training, safety and leadership training, and executive development. Under the leadership of Charles Jeanne, the company designed various programs to boost up the leadership skills of the supervisors and the managers while continuing their focus on public and environmental safety in 2013 Supervisory Leadership Development Program: Designed for supervisors to develop their leadership skills Creating Choices: Specifically designed to develop leadership and communication skills for women in our workforce. Safety Leadership Training: Designed for supervisory and management levels to develop leadership skills with a remarry focus on safety. To inform employees of what is happening within the company and to guide or direct them in order to achieve a common goal , each year Colder regularly conducts Town Hall Meetings in which the President and Chief Executive Officer and other senior executives communicate directly with employees. Colder Inc. Provides an excellent example that you dont need to be at a senior level to become a leader. The Porcupine Gold Mine team implemented a Mill Scats Reprocessing Project in order to lead changes for a better Colder (Colder, 2014). This project allowed Colder to urn reject materials into recovered or recycled steel. They identified an innovative solution to remove steel with magnet. This solution leads to an increase in the net revenue of 4. 9 million in 2013. The company is looking for opportunities to implement this project at their other mines as well. Governance Colder is governed by a board of directors whose principal objective is to generate acceptable returns to their security holders. The board is comprised of Business people and former ambassadors. The chairman of the board Ian Teller was appointed in 2006, previous to that he was the CEO for one year. Teller has 25 years f experience in the mining industry, working previously for as CEO of Wheaton River Minerals Ltd. Their corporate governance is in compliance with Canadian and US order to avoid any agency problems. Control Mechanisms Ownership concentration Colder is a publicly traded company and the top 5 institutional shareholders are (Mornings, 2014): Institutional Shareholder % Held Van Eek Associates Corp.. 6. 1 Arnold S. Policyholder Advisers, LLC 3. 88 Royal Bank of Canada 2. 75 Franklin Advisers Management Inc 2. 30 BOOM Capital Markets 2. 23 The large stakes give the shareholders a stronger incentive to monitor the management and make sure they are acting in their best interests. Incentive Based Pay In order to align the interests of the members of the board with the interests of the shareholders, Colder has adopted a director share ownership policy. The director mu st hold common shares at a value of 3 times their after tax compensation. The governance committee is in charge of reviewing the level of shareholder requirements. (Colder Inc, 2012) Strategic Alternatives Alternative 1: Status Quo Goldenrods current strategy has allowed the company to grow into one of the largest gold producers in the industry. This option maintains Goldenrods strategy to continue to grow the company through acquisitions. Currently, they are in a good financial position, however, in 2013, they had a loss in operating income, which shows inefficiency in some of their mine operations. SF: gold production, innovative culture, KIP: profit growth, increase sales growth from previous year Cost: N/A Alternative 2: Implement Mill Scats Reprocessing Project into Other Mines This option will allow Colder to implement Mill Scats Reprocessing Project, a project that will turn reject materials with large amount of steel into recovered or recycled tell. Up to now, this project has been carried out only in their Porcupine mine through which Colder recovered 4,100 ounces resulting in net revenue of $4. 9 million in 2013. Mines such as Wharf, Marlin, El Causal mines, are near the end of their life cycle. They would have significant amount of excess material in the form of steel accumulated at their location that needs to be disposed. SF: Training by Porcupine mine team, geological surveys, low cost structure KIP: Additional recovered steel in ounces, Increase in additional net revenue Cost: Salvaging and processing costs will be within $50,000 $200,000. Alternative 3: Acquisitions and to replace mines that are nearing the end of their life. Colder currently has $3. 6 billion dollars to spend on the acquisition of new mines. In this option Colder would spend that $3. 6 billion on new mines to increase their gold output and help sustain them in the future. SF: Sizeable reserves in new mine, Close to the start of production or already producing gold, Low production costs KIP: gold cost per oz. < 1000$/oz. , 500,0000z of gold production per year Cost: $3. 6 billion dollars (based on their budget) Alternative 4: Re-launch the Goldcorp Challenge: The Gold Rush Reborn2 This option ill allow Goldcorp to reintroduce the "Goldcorp Challenge" that would change Goldcorp's profitability for decades to come. Colder did implement this challenge in the year 2000 when former CEO Rob Mclean addressed the company concerns of low gold production. And now when some of their mines are reaching the end of its life cycle, it is a good idea to implement the competition again considering the huge success of it in the past. The results of this competition revealed an excess of 110 possible mine locations. 50% of these locations were previously unknown to Colder and over 80% yielded significant gold reserves. The Colder Challenge will gather people of all backgrounds from all over the world to extract possible gold mine locations. Colder can provide their geographical data to the public. It will also give rise to the new concept of effective business from a remote location. Discovery of mines will be cost effective even though the researchers did not physically need to visit the property. The ROI on this project will be very impressive because of the absence of unproductive exploratory drilling. The structure will be the same as the previous, but the prize money will be increased to $2 million to attract more analyst refashions to Join. SF: Superior marketing capabilities, effectiveness of the data provided to the contestants, effective planning and budgeting KIP: Return on investment, market growth, increase in gold production Cost: $2 million for prize money Alternative 5: Hedging Gold Price This option will allow Colder to enter into a hedge contract where the price at which the gold will be sold at the future delivery date will be determined earlier. Since the future is unpredictable, this will prevent Colder from the loss if the gold price is to drop in the future. The risk for this option is that Colder would have en better off without the hedge if the price of the gold rises. SF: In-depth analysis of gold price forecast, worldwide Jewelry and industrial demand, gold production KIP: increase in profit margin, increase in sales growth Cost: Depends on gold fluctuation. The loss incurred due to increase in gold price at the delivery date compared to the pre- determined price would be the cost of hedging Alternative 6: Manage Stakeholder Expectations Colder has been under scrutiny in the past for unethical acts and suspicions of breaking human rights legislation and even suspected of killing a high ranking officer peeping them calm and confident in Goldenrods projects is important. Quiet stakeholders such as fenders dont excerpt a lot of effort into decision making, but without looking after their interests, they may choose to withdraw their funds from Colder and take their investment somewhere else. Also it is necessary to make the local communities happy as without their support Colder cannot run their projects successfully. There should be a meeting every quarter with Goldenrods investors, shareholders and senior level managements to maintain constant communication twine the company and the stakeholder to avoid frustrations or concerns in the company operations. Investors and managers across the country could be connected via phone or other communication medium. Regular updates about Goldenrods financial health or project progress can increase the confidence levels of expecting positive results. Also in order to enhance engagement to build up relationships with communities and investors, Colder could organize a program called Community first. Through this program Colder can make significant investments in community infrastructure and provide scholarships to local students. SF: Community support in human rights initiatives, government support KIP: Increase in stakes sold, increase in community participation Cost: Between 1-3 million which can be covered by 1% of pre-tax earnings from operation set aside as donation fund Proposed Strategy Based on the decision criteria matrix shown in Appendix 9, we recommend Colder to implement alternatives 2, 3, 4 and 6. By combining these four strategies, Colder will be able to maximize the utilization of mines by extracting unrecorded metals, maintain their growth strategy through acquisition of mines and maximize the geographical search for new mines. In addition to this, Colder will enjoy a healthy stakeholder relationship which is crucial for the success of their business. Implementation The proposed strategy should be implemented between now to next five years. Since stakeholders support determines the success of the other strategies, Colder should first focus on meeting the stakeholders expectation. They should organize a meeting within a month where all the investors, senior level executives and managers meet and discuss the companys future plan and solve any queries. They would implement the Community First program right away to improve relationship with the community and to gain their support. The Chief Financial Officer and Senior Vice President for People and Safety will be responsible for implementing this program. This program will again be done once a location is determined for the new mines. The effectiveness of this strategy will be determined based on feedbacks from the stakeholders. After gaining the support from stakeholders, Colder can implement the MSP project in their three mines starting with the one that is closer o the end of their life cycle. This strategy could be fully implemented in the three mines by 2016. Once Colder generates revenue from the recycle steel, they can hunt for new mines implementing the Colder Challenge by 2017. The CEO, Executive Vice President and Chief Operating Officer and Senior Vice President for Exploration should work together on providing geographical data and other data to the participants to make the competition effective. The success for this strategy could be measured by benchmarking with the previous results of 2000 when they first equability studies for the potential mines, Premium Resources, Argonaut Gold, Allied Nevada Gold, and Tahoe Resources, that they are looking to acquire. They should gather the required resources and project the capacity of each mine. After performing these tasks, they should present these options to the board to get their approval. To determine what mines we would acquire a factor analysis was done on 4 mines and is shown below. Based upon our decision criteria, we have determined that the best course for Colder would be to acquire Allied Nevada Gold and Argonaut Gold by 2016. The total cost for acquiring these companies would be 1 billion dollars. With the remaining $2. 6 billion, Colder would pay off all of Novenas outstanding debt at roughly $700 million and then use $1. 3 billion to expand the mine to bring production from 240,000 oz. Of gold per year to 800,000 oz. Of gold per year by 2020. The remaining $600 million would go towards bringing Argonauts mine to the production stage within 3 years from its acquisition. Projected Kips The following are the projected Kepis to measure success once the four recommended strategies will be implemented by Colder: Increased profits so sasss operating refits will be positive Increased gold production Higher return on investment Increased revenue from sale of recycled steels Reduction in number of complaints from local communities Positive company image for stakeholders Appendices Appendix 1 General Environment Analysis (GASPED) Dimensions Factors Canada USA Latin America Global Increasing investment in construction and infrastructure lead to an 8% increase in global demand for products like steel Demographic Population $34. 88 million $313. 9 million $589 million Age Age distribution is even Young population is dominate Ethnic Mix