Fitch Places Goldcorp on Rating Watch Positive

(The following statement was released by the rating agency) Fitch Ratings-Chicago-January 15: Fitch Ratings has placed Goldcorp Inc.'s Long-Term Issuer Default Rating (IDR) and senior unsecured revolver, term loan and note ratings on Rating Watch Positive. These actions follow the announcement that Goldcorp and Newmont Mining (NYSE:NEM) have entered into a definitive agreement whereby Newmont will acquire Goldcorp in a stock-for-stock transaction. A complete list of rating actions follows at the end of this release. The Rating Watch Positive reflects Fitch's expectation that the combined company will have a clear path toward de-levering to a total debt-to-EBITDA below 1.5x and that the ratings will benefit from the combined company's size, scale, project pipeline, favorable operating jurisdictions and diversification. Upon closing, Fitch anticipates the combined company would be rated 'BBB+'. Fitch also anticipates resolving the Rating Watch Positive upon completion of the transaction, which is currently expected to close in the second quarter of 2019. KEY RATING DRIVERS Proposed Acquisition by Newmont: The proposed acquisition will create a leading gold producer with six to seven million ounces of production annually from favorable jurisdictions. The companies expect to generate up to $100 million in annual pre-tax synergies. In addition, the combined scale of the project pipeline allows prioritizing project development and targeting $1billion to $1.5 billion in divestitures over the next two years enhances the ability to fund development through the cycle. Closing is expected in the second quarter of 2019 and is subject to shareholder approval, among other conditions. De-leveraging potential: Newmont targets a net debt-to-EBITDA of below 1x and expects to achieve that over time. Fitch believes the combined company will be above this target post-close with a clear path to de-leveraging below that target and for total-debt-to EBITDA to be below 1.5x by the end of 2021 through scheduled debt repayment and average FCF (cash from operations after capex and dividends) generation of at least $450 million per year on average at average gold prices of $1,200 per ounce. Cost-Reduction Efforts: Goldcorp has targeted $350 million in sustainable annual mine-site and corporate efficiencies achieving $250 million by June 30, 2018. Furthermore, Goldcorp expects to bring all-in sustaining costs (AISC) below $700/ounce by YE 2021 as part of its renewed focus on increasing net asset value per share. Goldcorp announced 2018 production at 2,294,000 ounces and expected AISC for the full year at the revised guidance of $850 per ounce. Fitch expects Goldcorp to remain in the second quartile of the global cost curve for gold producers. Near-Term Pressure on FCF: Fitch expects stand-alone Goldcorp to have modest FCF burn in 2018 given capex guidance of $1.3 billion. Capex is guided to fall to the $825 million-$875 million per year range thereafter on lower growth spending. The company reports that a $100/ounce decline in gold prices from $1,300/ounce could result in a roughly $240 million decline in EBITDA. Fitch estimates that the 2018 FCF burn would be in the $500 million range if gold prices sink to about $1,000/ounce. Fitch expects higher production, declining costs and lower capex at our $1,200/ounce gold price assumption should result in stand-alone Goldcorp FCF running over $500 million per year beginning in 2019. High-Quality Asset Profile: Goldcorp operates sizable mines in favorable jurisdictions. Its top four producing mines, which total over 60% of consolidated gold production, all have estimated reserve lives over 10 years. Production is ramping up at Eleonore (full production expected in late 2018) and Cerro Negro (full production is expected in second-half 2018). DERIVATION SUMMARY Goldcorp combined with Newmont (not rated) is expected to produce between 6 million and 7 million ounces of gold per year on average after divestitures compared to New Barrick's (not rated) 6.5 million ounces and have a larger reserve base than New Barrick with similar net leverage although with higher costs on average. Goldcorp is a major gold producer with a diverse resource base and a favorable cost position. Production is expected to increase from 2.6 million ounces in 2017 to 3 million ounces by the end of 2020, which is generally consistent with higher-cost Kinross Gold Inc. (BBB-/Stable), but greater than Yamana Gold Inc. (BBB-/Stable). Fitch calculates Goldcorp's net debt-to-EBITDA at 2.6x as of Sept. 30, 2018 compared to 0.4x for Newmont,1.2x for Kinross and 2.7x for Yamana. Fitch calculated total debt-to-EBITDA as of Sept. 30, 2018 was 2.7x for Goldcorp, 1.8x for Newmont, 1.6x for Kinross and 2.9x for Yamana. Goldcorp's average mine life of producing mines is on the higher end compared with peers at over 12 years. The combined company's diversification into silver, lead, copper and zinc, competitive cost position, producing mines in favorable political environments and projects under development support the Rating Watch Positive. The combination of Newmont and Goldcorp would increase flexibility in capital spending sequencing and result in enhanced de-leveraging capacity. Should Newmont acquire Goldcorp, Goldcorp's ratings would be rated under Fitch's parent/subsidiary linkage. KEY ASSUMPTIONS Fitch's Key Assumptions Within Our Rating Case for the Issuer -- $1,200/ounce gold, $16/ounce silver, $3.04/pound copper gradually increasing to $3.17; -- Capex consistent with guidance; -- Production at guidance; -- No material execution issues with ramp-ups of ongoing production to expected annualized run-rate production levels or delays of mines in construction process; -- Cash costs consistent with guidance; -- Distributions from Pueblo Viejo Dominicana Corporation over forecast at $182 million, $157 million, $168 million and $206 million at Fitch price assumptions. RATING SENSITIVITIES Developments That May, Individually or Collectively, Lead to Positive Rating Action To resolve the Rating Watch Positive: -- The acquisition by Newmont is closed with a clear de-leveraging path to total debt-to EBITDA below 1.5x. To upgrade Goldcorp, on a standalone basis: -- Substantial progress with the company's 20/20/20 plan; -- Sustained positive FCF generation on average; -- Expectations of sustained total debt/EBITDA below 1.3x; -- Maintaining an average operating mine life of at least 10 years. The ratings of Goldcorp could be stabilized if Newmont fails to acquire the company. Developments That May, Individually or Collectively, Lead to Negative Rating Action To downgrade Goldcorp, on a standalone basis: -- Deterioration in gold prices and internally generated cash flow without an equal response in the form of lowered costs, reduced spending, dividend cuts, asset sales or the raising of equity; -- Expectations that total debt/EBITDA will be greater than 2.0x on a sustained basis; -- Expected period of sustained negative FCF after dividends; -- Debt-funded shareholder-friendly activity; -- Material disruptions or delays at major mine sites. LIQUIDITY Sufficient Liquidity: At Sept. 30, 2018, Goldcorp had cash on hand of $125 million, $41 million of short-term investments and $2.65 billion of availability under its $3.0 billion revolving credit facility due 2023. Fitch expects the company to be substantially FCF positive beginning in 2019 given the $1,200/ounce price assumption, lower capex and higher production. FULL LIST OF RATING ACTIONS Fitch has placed the following ratings on Rating Watch Positive: Goldcorp Inc, --IDR 'BBB'; --$3.0 billion unsecured revolver 'BBB'; --Senior unsecured notes 'BBB', --$400 million unsecured term loan 'BBB'. Contact: Primary Analyst Patrick Hughes Associate Director +1-312-368-5456 Fitch Ratings, Inc. 70 W. Madison St. Chicago, IL 60602 Secondary Analyst Monica Bonar Senior Director +1-212-908-0579 Committee Chairperson Dino Kritikos Senior Director +1-312-368-3150 Summary of Financial Statement Adjustments - Fitch has made no material adjustments that are not disclosed within the company's public filings. Media Relations: Elizabeth Fogerty, New York, Tel: +1 212 908 0526, Email: elizabeth.fogerty@thefitchgroup.com. Additional information is available on www.fitchratings.com. For regulatory purposes in various jurisdictions, the supervisory analyst named above is deemed to be the primary analyst for this issuer; the principal analyst is deemed to be the secondary. 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