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Goldcorp Inc. New (Toronto:G): Follow-Up No 7

April 4, 2005

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Business Summary

Goldcorp (TSX:G; NYSE:GG) is a financially secure company whose excellent growth potential has increased with the now completed acquisition of Wheaton River Minerals (TSX:WRM). The new Goldcorp's assets are now geographically better diversified with four mines in North America and Mexico, two in South America and one in Australia. The balance sheet has no debt and USD 461m in total liquid assets (at 31/12/04). The company's net cash position is stronger than that of most other gold companies. Being one of North America's most profitable gold companies, Goldcorp pays an annual USD 0.18 per share dividend. In addition, a special USD 0.50 dividend was issued to Goldcorp shareholders as a thank you for supporting the merger with Wheaton River on February 16th, 2005, which helped to fence off the hostile bid by Glamis Gold (TSX/NYSE:GLG).

The Goldcorp / Wheaton River Merger

As a result of the transaction, Goldcorp and Wheaton River shareholders will together own the world's fastest-growing >1m oz gold producer. The market judged the merger favorably in that - contrary to what has happened to other gold companies who went after an industry peer - Goldcorp's share price has held up very well relative to the North American reference gold share indices in which it figures. That the acquisition makes sense to shareholders of both companies can be seen from the above figure which shows that the "old" Goldcorp's major shortcoming, the lack of asset diversification, has been overcome, while Wheaton River has reduced its exposure to base metals by pooling its assets with a pure gold producer such as Goldcorp.

As can be seen from the following diagrams, the 'new' Goldcorp's gold production is expected to amount to 1.2m ounces in 2005. Moreover, Goldcorp's production growth over the next three years is going to be the highest of all major North American major gold miners.

Both Goldcorp and Wheaton River are in a strong financial position, allowing the new Goldcorp to continue paying dividends to shareholders and paying for further acquisitions and ongoing exploration and feasibility studies in cash rather than newly issued paper. The management of the merged company will feature Ian Telfer, former CEO of Wheaton River as director and CEO, and Robert R. McEwen, pre-merger CEO of Goldcorp as non-executive Chairman. In general, the new Goldcorp will be managed by some of the most successful and committed people in the sector, all of them with a proven track record.

Becoming the Lowest-Cost Million Ounce Gold Producer

Thanks to the high copper grades mined in Wheaton River's Bajo de la Alumbrera gold/copper mine in Argentina, the new Goldcorp will produce at an amazingly low USD 55/oz average cash cost per ounce of gold produced. If copper is instead treated as a co-product rather than a by-product, the production costs are still very low at USD 136/oz per ounce of gold, thanks to the very gold-rich ore mined at Goldcorp's world class Red Lake mine in Ontario, Canada.

The merged company will couple Goldcorp's main asset, the Red Lake gold mine, which is the world's richest, with Wheaton River's highly profitable Mexican and South American mines. The new Goldcorp's asset portfolio is completed by Goldcorp's second Canadian mine, Wharf, and the Peak gold mine in southeastern Australia.

The Red Lake Mine - The World's Richest Gold Mine

As at the end of 2004, the Red Lake mine had grown to 5 million oz of reserves. The mine produced 551,886 oz in 2004 at a cash cost of USD 92/oz. The Red Lake mine is the richest gold mine in the world and the largest gold mine in Canada.

The Bajo de la Alumbrera Mine - A World-Class Cold/Copper Mine

Alumbrera commenced production in February 1998 and was developed by MIM Holdings (an Australian company) and its partners over a period of two years at a cost of USD 1.2 billion. In 2003 Xstrata acquired MIM Holdings (50% interest in Alumbrera) and Wheaton River Minerals increased its shareholding in the project to 37.5% (Northern Orion owns the remaining 12.5%). Alumbrera is one of the world's largest and lowest cost gold and copper operations with cash costs in the lowest quartile of producers. In 2004, annual production was 237,700 oz of gold, an improvement of 11% over plan.

The Luismin Complex of Gold/Silver Mines

The Luismin complex consists of two operating gold and silver mines, San Dimas, on the border of Durango and Sinaloa states, and San Martin in the state of Queretaro, and holds numerous exploration projects throughout Mexico. Production from the mines in 2004 was 132,500 oz of gold and 6.7m oz of silver, whereby Luismin achieved its highest production and lowest costs in its history. It is generally accepted that the true potential of the deposits are neither fully realized nor reflected in the stated reserves and resources.

The Peak Mine

Peak produced 142,700 oz Au and 6.6m lbs Cu in 2004. Gold production in 2004 was the best since 1997, with record mill throughput and lowest ever operating costs. Peak holds extensive exploration tenements in the Cobar district. The exploration aim is to search within a 100km radius of the mine for both oxide and sulphide deposits that will supplement the current mill or justify a mill expansion.

The Amapari Project

The Amapari project, located in the Amapa state of Brazil, and acquired by Wheaton River Minerals in January 2004, consists of an open-pittable heap leach oxide deposit and a deeper sulphide deposit. Previous owners have completed positive feasibility studies on the oxide deposit and a pre-feasibility study on the sulphide deposit. The project has all the necessary permits and licenses in place as it moves through construction. Progress on the construction of the Amapari project has exceeded expectations, with the project on budget and ahead of schedule. As of December 2004, the bulk earth moving and civil works have been completed, and pit pre-stripping is well underway. Steel erection is now proceeding in parallel with major concrete works, and plastic liners are being laid on the leach pads and inside the solution ponds. The leach boom stacker is being assembled in readiness for first ore, now anticipated during the third quarter of 2005. In December, exploration drilling commenced on the Vila De Meio trend immediately south of the existing planned pits.

The Los Filos Project

Los Filos is a 100% owned development project located in the Nukay mining district in the central region of the state of Guerrero in southern Mexico (230 km south of Mexico City).The Los Filos feasibility study is near completion, and is expected by March 31, 2005. All necessary surface rights were granted in 2004 and an extensive community relations program is well underway. Metallurgical studies are showing better-than-expected metal recoveries and lower-than-expected consumable costs, both of which are very positive for the project's economics. Drilling is underway to the east, the northeast and in the former Aguita open pit. Exploration work is also underway on a number of regional targets.

Recent News Releases



GOLDCORP INC. (GG: NYSE; G: TSX) recently announced that reserve and resource estimations for the year ended December 31, 2004 continued to grow for the fourth consecutive year. The power of the Red Lake Mine was demonstrated in January 2005 when monthly production was 54,866 oz of gold, one of the highest monthly production results from the mine to date. The reserve and resource estimations were generated using a gold price of USD 375/oz and were independently audited by Watts, Griffis and McQuat, an internationally recognized geological consulting firm, based in Toronto, Ontario.

Goldcorp's total proven, probable reserves and measured, indicated resources grew to an estimated 6.8m oz of gold up from 6.4m at year-end, 2003. The Red Lake Mine accounted for 6.6m oz or 97% of this total. Including inferred resources, reserves and resources were estimated at 7.8 m oz.

More than 554,000 ounces of gold were extracted from the Red Lake Mine, and net of this production, total reserves and resources increased by 139,000 oz. This means that 693,000 oz of gold were discovered during 2004. Production from the High Grade Zone (HGZ) began at Red Lake Mine in mid 2000. Goldcorp has successfully replaced reserves and resources, net of production, in each of the past four years. By year-end, 2004, the total High Grade Zone reserves, resources and past production had grown to 8.4m oz. During the past 4.5 years, 2.3m oz were mined and 2.2m oz have been discovered, net of production; therefore 6.1m oz are remaining. Total reserves and resources, high grade and sulphide zones, at the Red Lake Mine grew to 7.5m oz (7.0m tons) with an average grade of 1.08 oz/ton (37.0 g/t) from 7.4m oz (6.8m tons) at a grade of 1.09 oz/ton (37.4 g/t).


GOLDCORP INC. (GG: NYSE; G: TSX) announced its financial and operating results for the 4th quarter and full year, ended December 31, 2004. In 2004, Goldcorp only sold two-thirds (2/3) of its gold production and withheld from sale 200,429 oz of fine gold! The impact of deferring the sale of one-third (1/3) of its production has the effect of significantly reducing Goldcorp's reported revenues, cash flow, earnings, assets and return on invested capital while increasing the reported cost per ounce of production.


FRIENDLY TAKEOVER BID MADE IN Q4 FOR WHEATON RIVER MINERALS A SUCCESS Goldcorp shareholders overwhelmingly approved the purchase and Wheaton River shareholders overwhelmingly accepted the offer to combine and create the world's lowest-cost million ounce gold producer, possessing a powerful treasury, strong organic growth, no debt, no hedge and a board and management team with proven entrepreneurial and operational skills. Goldcorp will begin consolidating Wheaton's operating results as of February 17, 2005.


For year end 2004, Goldcorp produced 628,005 oz of gold and the Red Lake Mine produced 551,886 oz, exceeding forecasts for the 4th consecutive year.

TOTAL LIQUID ASSETS CONTINUE TO GROW Goldcorp now has USD 461m in liquid assets (cash and short-term investments, marketable securities, gold bullion) which represents an increase of USD 51 million over 2003, despite paying out USD 53m in dividends and USD 56m in capital expenditures. The strengthening Canadian Dollar increased Goldcorp's cash holdings during the year by USD 24m. While this is not reflected in earnings, it is shown as a separate item on its consolidated statement of cash flows.

GOLD INVENTORY REACHES 221,220 OUNCES With 200,429 oz, approximately one-third (1/3) of production, being withheld in 2004 Goldcorp's gold inventory has a market value over USD 96m and a cost of USD 34m.


VANCOUVER, BC - Goldcorp Inc. (TSX:G) (NYSE:GG), and Wheaton River Minerals Ltd. (TSX:WRM) (AMEX:WHT) (together "Goldcorp"), announced the completion of the acquisition by their Mexican operating arm, Luismin, of the 2.4 million ounce Bermejal Gold Deposit in Mexico for cash consideration of USD 70m from Minera El Bermejal, S. de R.L. de C.V., a joint venture of Industrias Penoles S.A. de C.V. and Newmont Mining Corporation.

The Bermejal Gold Deposit is located 2 kilometers south of Goldcorp's Los Filos Gold Deposit, where feasibility studies are nearing completion. The acquisition increases Goldcorp's current measured and indicated mineral resources in the Guerrero Gold Belt district to nearly 6 million ounces of gold. The immediate proximity to Goldcorp's Los Filos Gold Deposit will allow the use of a joint processing facility for ore from both deposits and should result in the Los Filos project becoming the largest gold mining operation in Mexico, with average annual production expected to exceed 300,000 ounces. For further details of the indicated mineral resource estimate for the Bermejal Gold Deposit, please see the press release of Goldcorp dated March 22, 2005.



Vancouver, BC - Wheaton River Minerals Ltd. ("Wheaton") (TSX: WRM; AMEX: WHT), recently acquired by Goldcorp Inc (TSX: G; NYSE GG), reported record levels of gold reserves and resources as of December 31, 2004, summarized as follows: o Proven and Probable gold reserves have increased to 5.1 million ounces; o Measured and Indicated resources have increased to 3.7 million ounces; and o Inferred resources have increased to 5.1 million ounce

  • Proven and Probable gold reserves have increased to 5.1 million ounces;
  • Measured and Indicated resources have increased to 3.7 million ounces; and
  • Inferred resources have increased to 5.1 million ounces.

Ian Telfer, Chairman & Chief Executive Officer of the company said: "Nearly one million gold ounces were added to the reserve base during 2004, almost double the year's production of 513,000 oz. Wheaton has also exceeded 5m oz of proven and probable gold reserves for the first time in company history. When you combine this organic growth in reserves and resources with our record gold production and cost achievements of 2004, the strength of our operating team stands out."


  • Record net earnings of USD 142m ($ 0.25 per share) for 2004, an increase of 146% compared with USD 58m ($ 0.14 per share) in 2003.
  • Fourth quarter net earnings of USD 56m ($ 0.10 per share), double 2003 earnings of USD 28m ($ 0.06 per share).
  • Silver Wheaton transaction completed in October, 2004, which resulted in Wheaton holding 65% of a pure silver company having a market capitalization of approximately USD 530m (Wheaton's share = USD 345m).
  • Goldcorp merger successfully completed in February 2005 to create the world's lowest-cost million ounce gold producer with combined 2005 gold production expected to exceed 1.1 million ounces of gold at less than USD60/oz.

Fundamental Considerations: A Solid Top-Tier Gold Company

Source: Goldcorp Presentation; BMO Nesbitt Burns 2005 Global Resources Conference

Technical Considerations

The solid up-trend of the gold price in US Dollars is likely to continue. The USD 400-425 area has seen some good distribution from weak-handed specs to strong-handed investors and should provide good resistance if commodities go through a multi-month correction. A gold price target of USD 500 some time this year remains realistic.

Goldcorp's share price has been consolidating for well in excess of a year, which did not come as a surprise after having quintupled from its 2001 levels. There is massive support right below CAD 15 that should stem any additional sector-wide declines over the next couple of months and would provide a very good buying opportunity should the stock ever trade this low. On the upside, a decisive move above CAD 20 would be evidence that the consolidation had ended and set the stage for a move to new all-time highs.


As a result of the merger with Wheaton River Minerals, Goldcorp has become an even stronger company with better asset diversification and will pretty sure remain a core holding for both individual and institutional gold stock portfolios due to its excellent growth potential, its very healthy financial position, the liquidity of its shares and the quality of both its mines and management.

While there are certainly cheaper gold stocks that provide higher leverage to a rising gold price, this company in our view deserves a higher P/E multiple than other major gold companies and we are confident that this will remain so for the time being.

Our recommendation: A core holding for gold investors; Buy on occasional pullbacks!


Peter Zihlmann

[email protected]

[email protected]


April 4, 2005


Disclosure: The author has not been paid to write this article, nor has he received any other inducement to do so. The author is a shareholder in the company and will benefit from any increase in the company's share price. Disclaimer: The author's objective in writing this article is to invoke an interest on the part of potential investors in this stock to the point where they are encouraged to conduct their own further diligent research. Neither the information, nor the opinions expressed should be construed as a solicitation to buy or sell this stock. Investors are recommended to obtain the advice of a qualified investment advisor before entering into any transactions in the stock.

The term “carat” comes from “carob seed,” which was standard for weighing small quantities in the Middle East.
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