| Financial Instruments and Related Risks | 25.
FINANCIAL INSTRUMENTS AND
RELATED RISKS
(a)
Financial Assets and
Liabilities by Categories
At December 31, 2018
Amortized
FVTOCI (1)
Fair value
Effective
Total
Financial assets
Cash and cash equivalents $ 134 $ — $ — $ — $ 134
Short-term investments 38 — — — $ 38
Accounts receivable arising from
sales of metal — — 58 — $ 58
Equity securities (2) — 190 — — $ 190
Derivative assets designated as
hedging instruments — — — 2 $ 2
Derivative assets not designated as
hedging instruments — — 2 — $ 2
Other current and non-current
38
—
—
—
$ 38
Total financial assets
$ 210
$ 190
$ 60
$ 2
$ 462
Financial liabilities
Debt $ (2,867 ) $ — $ — $ — $ (2,867 )
Deferred payment obligation (163 ) — — — $ (163 )
Accounts payable and accrued
liabilities (549 ) — — — $ (549 )
Derivative liabilities designated
not designated as
hedging instruments — — — — $ —
Other current and non-current
(246 )
—
—
—
$ (246 )
Total financial liabilities
$ (3,825 )
$ —
$ —
$ —
$ (3,825 )
(1)
Investments in equity securities were designated as
FVTOCI upon initial recognition as the management of the equity
securities portfolio is not considered to be part of the
Company’s core operations. As such, the Company believes that
the financial results of the portfolio should not be reflected in
the Company’s net (loss) earnings. Securities in the
portfolio are disposed of when they no longer meet the
Company’s long-term investment strategy. During the year
ended December 31, 2018, the Company recognized a cumulative
loss of $2 million (2017 - gain of $16 million) on the sale of
its equity securities. The mark to market loss related to equity
securities for the year ended December 31, 2018 was
$108 million (tax of $nil) (2017 - loss of $17 million
(tax of $nil)).
(2)
Includes the Company’s investment in Leagold.
Subsequent to May 24, 2018, the Company ceased to have
significant influence over Leagold and no longer recognizes it as
an investment in associate.
At December 31, 2017
Amortized cost
FVTOCI
Fair value
Effective
Total
Financial assets
Cash and cash equivalents $ 186 $ — $ — $ — $ 186
Short-term investments 48 — — — $ 48
Accounts receivable arising from
sales of metal 3 — 110 — $ 113
Equity securities — 178 — — $ 178
Derivative assets designated as hedging
instruments — — — 2 $ 2
Derivative assets not designated as
hedging instruments — — 1 — $ 1
Other current and non-current
30
—
—
—
$ 30
Total financial assets
$ 267
$ 178
$ 111
$ 2
$ 558
Financial liabilities
Debt $ (2,483 ) $ — $ — $ — $ (2,483 )
Deferred payment obligation (182 ) — — — $ (182 )
Accounts payable and accrued liabilities (547 ) — — — $ (547 )
Derivative liabilities designated not
designated as hedging instruments — — (2 ) — $ (2 )
Other current and non-current
financial liabilities
(257 )
—
—
—
$ (257 )
Total financial liabilities
$ (3,469 )
$ —
$ (2 )
$ —
$ (3,471 )
(b)
Derivative Instruments
(“Derivatives”) Derivatives Designated as
Cash Flow Hedges As part of Goldcorp’s Financial Risk
Management Policy, unless otherwise approved by the Board of
Directors, the Company can elect to hedge up to a maximum of 50%,
30% and 10% of forecasted operating, exploration, general
administrative and sustaining capital (“operating and
sustaining”) expenditures over the next 12 months, subsequent
13 to 24 months and subsequent 25 to 36 months, respectively, to
manage the foreign currency risk associated with these
expenditures. In addition, during the year ended December 31,
2016, the Company’s Board of Directors authorized the Company
to hedge up to 50% of Mexican peso denominated forecasted
expenditures in 2016 through 2018 for an expansionary capital
project, the Pyrite Leach project (“PLP”), at
Peñasquito. In 2016, the Company designated Mexican peso
currency contracts as cash flow hedges of anticipated Mexican peso
denominated PLP expenditures and operating and sustaining
expenditures for Peñasquito. At December 31, 2018, there
was no open position for these hedges (2017 –
2,245 million Mexican pesos). In addition, under the Company’s Financial
Risk Management Policy, the Company can elect to hedge up to a
maximum of 50%, 30% and 10% of the Company’s consolidated
forecast by-product For both the Company’s foreign currency and
commodity hedges, the Company designates the spot element of the
forward contracts to hedge its currency and commodity price risk,
as applicable, and applies a hedge ratio of 1:1 as the underlying
risk of the foreign exchange and commodity forward contracts are
identical to the hedged risk components. The Company determines the existence of an economic
relationship between the hedging instrument and hedged item based
on the currency or commodity (as applicable), amount and timing of
their respective cash flows. The Company assesses whether the
derivative designated in each hedging relationship is expected to
be and has been effective in offsetting changes in cash flows of
the hedged item using the hypothetical derivative method whereby
the Company compares past changes in the fair value of the forward
contracts with changes in the fair value of a hypothetical
derivative. The main sources of hedge ineffectiveness in the
hedges of forecast Mexican peso denominated expenditures are:
(i)
the effect of the counterparties’ and the
Company’s own credit risk on the fair value of the forward
contracts, which is not reflected in the fair value of the hedged
item;
(ii)
differences in the timing of the hedged
transactions; and
(iii)
for some of the Company’s foreign currency
hedges, the impact of the fact that at the time of initial
designation, the forward contracts were off-market The main sources of hedge ineffectiveness in the
Company’s hedges of forecast lead and zinc sales are:
(i)
the effect of the counterparties’ and the
Company’s own credit risk on the fair value of the forward
contracts, which is not reflected in the fair value of the hedged
item, and
(ii)
the difference in the metal pricing period for the
forecasted metal sales and the pricing period for the hedging
instrument. The net gain on Derivative designated as cash flow
hedges for the year ended December 31, 2018 recorded in OCI
was $2 million (2017 – $15 million), net of tax expense
of $1 million (2017 – $8 million), which represented the
effective portion of the change in fair value of the hedges. The
gain on the ineffective portion of the currency hedges of
$3 million (2017 – $7 million) was included in Other
(Expense) Income, net, in the Consolidated Statements of (Loss)
Earnings. For the year ended December 31, 2018,
$15 million (2017 – $nil) of Peñasquito’s
revenues relate to realized and unrealized gains on commodity
hedges.
(c)
Fair Value
Information
(i)
Fair Value Measurements of
Financial Assets and Liabilities Measured at Fair
Value The categories of the fair value hierarchy that
reflect the significance of inputs used in making fair value
measurements are as follows: Level 1 – quoted prices in active
markets for identical assets or liabilities; Level 2 – inputs other than quoted
prices included in Level 1 that are observable for the asset
or liability, either directly (i.e., as prices) or indirectly
(i.e., derived from prices); and Level 3 – inputs for the asset or
liability that are not based on observable market data. The levels in the fair value hierarchy into which
the Company’s financial assets and liabilities that are
measured and recognized on the Consolidated Balance Sheets at fair
value on a recurring basis were categorized as follows:
At December 31, 2018
At December 31, 2017
Level 1
Level 2
Level 1
Level 2
Cash and cash equivalents $ 134 $ — $
186 $ —
Accounts receivable arising from sales
of metal concentrates — 58 — 110
Investments in securities 190 — 178 —
Derivative assets designated as cash flow hedges — 2 — 2
Derivative assets not designated as cash flow
hedges — 2 — 1
Derivative liabilities not designated as cash flow
hedges
—
—
—
(2 ) At December 31, 2018, there were no financial
assets and liabilities measured and recognized at fair value on a
non-recurring There were no transfers between Level 1 and
Level 2 during the year ended December 31, 2018. At
December 31, 2018, there were no financial assets or
liabilities measured and recognized on the Consolidated Balance
Sheets at fair value that would be categorized as Level 3 in
the fair value hierarchy. During the year ended December 31,
2018, the Company recognized impairment expense for certain of its
mining interests, which adjusted their carrying amounts to their
recoverable amounts, being their FVLCD. Valuation techniques and
inputs used in the calculation of these fair value based amounts
are categorized as Level 3 in the fair value hierarchy
(note 20)
(ii)
Valuation Methodologies
Used in the Measurement of Fair Value for Level 2 Financial
Assets and Liabilities
Accounts receivable arising from sales of metal
concentrates: The Company’s metal concentrate sales
contracts are subject to provisional pricing with the final selling
price adjusted at the end of the quotational period. At the end of
each reporting period, the Company’s accounts receivable
relating to these contracts are marked-to-market
Derivative assets and liabilities: The Company’s derivative assets and
liabilities were comprised of investments in warrants and foreign
currency forward contracts. The fair values of the warrants are
calculated using an option pricing model which utilizes a
combination of quoted prices and market-derived inputs, including
volatility estimates. Foreign currency forward contracts are valued
using a combination of quoted prices and market-derived inputs
including credit spreads.
(iii)
Fair Values of Financial
Assets and Liabilities Not Already Measured at Fair
Value At December 31, 2018, the fair values of the
Company’s notes payable and deferred payment obligation, as
compared to the carrying amounts, were as follows:
Level
Input
Carrying (1)
Fair value
$1.0 billion notes 1
Closing price $ 995 $ 999
$1.5 billion notes 1 Closing
price
1,005 1,005
Deferred payment obligation
2
4.75% (2)
163
163
(1) (2) At December 31, 2018, the carrying amounts of
the Company’s short-term investments, other current financial
assets, accounts payable and accrued liabilities, term loans, and
other current financial liabilities were considered to be
reasonable approximations of their fair values due to the
short-term nature of these instruments.
(d)
Financial Instruments and
Related Risks The Company manages its exposure to financial
risks, including credit risk, liquidity risk, currency risk,
interest rate risk and price risk in accordance with its Financial
Risk Management Policy. The Company’s Board of Directors
oversees management’s risk management practices by setting
trading parameters and reporting requirements. The Financial Risk
Management Policy provides a framework for the Company to manage
the risks it is exposed to in various markets and to protect itself
against adverse price movements. All transactions undertaken were
to support the Company’s ongoing business. The Company does
not acquire or issue derivative financial instruments for trading
or speculative purposes. The following describes the types of risks that the
Company is exposed to and its objectives and policies for managing
those risk exposures:
(i)
Credit Risk Credit risk is the risk that the counterparty to a
financial instrument will cause a financial loss for the Company by
failing to discharge its obligations. Credit risk is primarily
associated with trade receivables; however, it also arises on cash
and cash equivalents, short term investments, derivative assets,
other receivables and accrued interest receivable. To mitigate
exposure to credit risk on financial assets, the Company has
established policies to limit the concentration of credit risk, to
ensure counterparties demonstrate minimum acceptable credit
worthiness and to ensure liquidity of available funds. The Company closely monitors its financial assets
and does not have any significant concentration of credit risk. The
Company sells its products exclusively to large international
financial institutions and other organizations with strong credit
ratings. The historical level of customer defaults has been
negligible and, as a result, the credit risk associated with trade
receivables at December 31, 2018 is considered to be
negligible. The Company invests its cash and cash equivalents and
short term investments in highly-rated corporations and government
issuances in accordance with its Short-term Investment Policy and
the credit risk associated with its investments is considered to be
low. Foreign currency and commodity contracts are entered into with
large international financial institutions with strong credit
ratings in order to minimize counterparty risk. The Company’s maximum exposure to credit risk
was as follows:
At December 31
At December 31
Cash and cash equivalents $ 134 $ 186
Short term investments 38 48
Accounts receivable arising from sales of
metal concentrates 58 110
Other current and non-current 29 29
Current and non-current 4 3
Accrued interest receivable (note
19a))
9
4
$ 272
$ 380
(ii)
Liquidity
Risk Liquidity risk is the risk that the Company will
encounter difficulty in meeting obligations associated with
financial liabilities. The Company utilizes a planning, budgeting
and forecasting process to help determine the funds required to
support the Company’s normal operating requirements on an
ongoing basis, its expansionary plans and its dividend
distributions. The Company maintains committed loan facilities to
meet its short-term business requirements, taking into account its
anticipated cash flows from operations and its holdings of cash and
cash equivalents. During the year ended December 31, 2018, the
Company generated cash flows from operations, one of the
Company’s main sources of liquidity, of $791 million
(year ended December 31, 2017 – $1,211 million). At
December 31, 2018, Goldcorp held cash and cash equivalents of
$134 million (December 31, 2017 – $186 million) and
short-term investments of $38 million (December 31, 2017
– $48 million). At December 31, 2018, the
Company’s working capital, defined as current assets less
current liabilities, was negative $152 million (December 31,
2017 – negative $112 million), which was due primarily to the
Company’s one-year non-revolving
due in March 2019. The Company intends to repay the
term loans using cash flow from operations, draws on its credit
facility, and/or other short-term bank facilities in March
2019. On March 14, 2018, the Company entered into
three one-year non-revolving In June 2017, the Company completed the extension
of its $3.0 billion credit facility term by one year to
June 22, 2022. It was extended again in June 2018 by one year
to June 30, 2023. The unsecured, floating rate facility bears
interest at LIBOR plus 1.40% when drawn and 0.2% on the undrawn
amount, based on Goldcorp’s current bond ratings, and is
intended to be used for liquidity and general corporate purposes.
At December 31, 2018, the balance outstanding on the revolving
credit facility was $480 million (December 31, 2017 –
$nil) with $2.52 billion available for the Company’s use
(December 31, 2017 – $3.0 billion). Certain of the Company’s borrowings are
subject to various financial and general covenants with which the
Company was in compliance at December 31, 2018. At December 31, 2018, the Company had letters
of credit outstanding in the amount of $419 million (December
31, 2017 – $420 million) of which $323 million (December
31, 2017 – $323 million) represented guarantees for
reclamation obligations. The Company’s capital commitments
for the next twelve months amounted to $301 million at
December 31, 2018, including the Company’s funding
obligation for the Norte Abierto project for the next twelve
months. During 2017, the Company entered into an agreement with a
vendor to construct the Coffee Project and to potentially manage
its initial two years of operation. Subsequent to December 31,
2018, the Company terminated the agreement and is currently in
discussions to sign a new contract in 2019 with the same vendor at
which time future commitments related to the construction of the
Coffee mine will be evaluated. There was no cost associated with
the termination. In the normal course of business, the Company
enters into contracts that give rise to commitments for future
minimum payments. The following table summarizes the remaining
contractual maturities of the Company’s financial liabilities
and operating and capital commitments, shown in contractual
undiscounted cashflows:
At December 31,
At December 31, 2018
2017
Within 1 2 to 3 4 to 5
Over 5
year
years
years
years
Total
Total
Financial liabilities
Accounts payable and accrued liabilities $ 549 $ — $ — $ — $ 549 $ 570
Derivative liabilities designated as
hedging instruments 2 — — — 2 —
Derivative liabilities not designated
as hedging instruments 2 — — — 2 2
Debt repayments (principal portion) 880 550 1,000 450 2,880 2,500
Deferred payment obligation 10 40 40 73 163 182
Other
1
4
1
16
22
29
1,444 594 1,041 539 3,618 3,283
Other commitments
Capital expenditure commitments (1) 301 327 62 98 788 856
Operating expenditure commitments 381 145 257 256 1,039 619
Reclamation and closure cost
obligations 74 50 45 1,792 1,961 1,572
Interest payments on debt 72 153 105 503 833 913
Minimum rental and lease payments (2) 10 10 6 8 34 35
Other
4
15
—
—
19
16
842
700
475
2,657
4,674
4,011
$ 2,286
$ 1,294
$ 1,516
$ 3,196
$ 8,292
$ 7,294
(1)
Contractual commitments are defined as agreements
that are enforceable and legally binding. Certain of the
contractual commitments may contain cancellation clauses; however,
the Company discloses the contractual maturities of the
Company’s operating and capital commitments based on
management’s intent to fulfill the contract.
(2)
Excludes the Company’s minimum finance lease
payments (note 23)
(iii)
Market Risk Currency
risk Currency risk is the risk that the fair values or
future cash flows of the Company’s financial instruments will
fluctuate because of changes in foreign exchange rates. Exchange
rate fluctuations may affect the costs that the Company incurs in
its operations. Gold, zinc, silver, lead and copper are sold in US
dollars and the Company’s costs are incurred principally in
US dollars, Canadian dollars, Mexican pesos and Argentinean pesos.
The appreciation or depreciation of non-US non-US non-current non-US non-monetary non-US In accordance with its Financial Risk Management
Policy, the Company entered into Mexican peso forward contracts
during the year ended December 31, 2016 to purchase the
foreign currency at pre-determined (note
25(b)) As of December 31, 2018, the Company was
primarily exposed to currency risk through the following financial
assets and liabilities, income and other taxes receivables
(payables) and deferred income tax assets and liabilities
denominated in foreign currencies.
Financial asset and
liabilities
At December 31,
2018
Cash and
Accounts non-current
Accounts non-current
Sales and
Income taxes non-current
Deferred
Canadian
dollar
$ 1 $ 10 $ (233 ) $ 30 $ 7 $ (173 )
Mexican peso
10 10 (95 ) 213 (141 ) (1,722 )
Argentine peso
4
—
(49 )
26
(9 )
(373 )
$ 15
$ 20
$ (377 )
$ 269
$ (143 )
$ (2,268 )
At December 31,
2017
Canadian dollar
$ 5 $ 10 $ (231 ) $ 24 $ 35 $ (270 )
Mexican peso
3 18 (112 ) 174 (203 ) (2,273 )
Argentine
peso
14
—
(57 )
80
1
(396 )
$ 22
$ 28
$ (400 )
$ 278
$ (167 )
$ (2,939 ) During the year ended December 31, 2018, the
Company recognized a net foreign exchange loss of $24 million
(year ended December 31, 2017 – loss of $23 million),
and a net foreign exchange loss of $272 million in income tax
expense on income taxes receivable (payable) and deferred income
taxes (year ended December 31, 2017 – gain of $9
million). Based on the Company’s net foreign currency
exposures at December 31, 2018, depreciation or appreciation
of applicable foreign currencies against the US dollar would have
resulted in the following increase or decrease in the
Company’s net loss:
At December 31, 2018
Possible exposure (1)
Impact on (loss) earnings exposure related to taxes
Impact on (loss) earnings taxes
Canadian dollar
10% $ 13 $ 108
Mexican peso
10% 9 53
Argentine peso 25%
3
42
(1)
Possible exposure is based on management’s
best estimate of the reasonably possible fluctuations of foreign
exchange rates in the next twelve months.
Interest Rate
Risk Interest rate risk is the risk that the fair values
and future cash flows of the Company’s financial instruments
will fluctuate because of changes in market interest rates. The
Company is exposed to interest rate cash flow risk primarily on its
outstanding debt subject to floating rates of interest, its
shareholder loan related to Pueblo Viejo, term loan and credit
facility, its cash and cash equivalents, and interest-bearing
receivables. The Company is exposed to interest rate fair value
risk primarily on its debt subject to fixed rates of interest
(note 22). fixed-and A 10% increase or decrease in the interest earned
from financial institutions on deposits held would result in a
nominal increase or decrease in the Company’s net earnings.
There was no significant change in the Company’s exposure to
interest rate risk during the year ended December 31,
2018. Price Risk Price risk is the risk that the fair value or
future cash flows of the Company’s financial instruments will
fluctuate because of changes in market prices. There was no
significant change to the Company’s exposure to price risk
during the year ended December 31, 2018. The Company has a policy not to hedge gold sales.
In accordance with the Company’s Financial Risk Management
Policy, the Company may hedge up to 50%, 30%, and 10% of its
by-product The Company holds certain investments in equity
securities which are measured at fair value, being the closing
share price of each equity security, at the balance sheet date. The
Company is exposed to changes in share prices which would result in
gains and losses being recognized in other comprehensive
income. |
