From a financial perspective

The Red Lake (a.k.a. Arthur White) mine was owned and operated by Dickenson Mines Ltd. for most of its history. In an early August interview in Goldcorp Inc.’s Toronto office, the chairman and CEO, Rob McEwen, describes how he became involved with the mine, and how far it has come.

“I’d watched Dickenson since the early 1980s. The management had changed; Peter Munro and his team had come in from Falconbridge. The Dickenson mine was clearly starved of capital, and therefore had had very little exploration for years. It was immediately next door to one of the richest, most important mines in North America [the Campbell mine]. Yet there had been not one hole drilled from the bottom 1,400 feet [430 m] of the shaft. The old adage that you should look for gold in the shadow of the headframe was staring me in the face. We [at Goldfund and Goldtrust mutual funds] invested in convertible debentures and watched.

“I stepped in as the ‘white knight’ in 1989 when Corona tried to take over. I became troubled by the decision-making process, so I replaced the executive and the board in 1990, and became chairman and CEO. A year later, I hired a new management team.”

Dennis Brown was the mine’s human relations manager at the time. In an interview in Balmertown, he commented: “People thought Rob was crazy to buy the Dickenson mine, and then to keep it, and then to buy up other ground in the area. But he thinks differently from other people.”

McEwen continues, “As a former broker/portfolio manager, I had a view of what a gold company should look like. Dickenson had good foundation stones, but needed some financial architecture.”

In 1994, McEwen’s team completed a merger of four corporations to create the Goldcorp Inc. of today. This resulted in two classes of shares for each of Goldcorp and CSA Management, which held a controlling interest in Goldcorp.

The US$56-million expansion at the Red Lake mine is almost complete. McEwen places the expected financial results in the context of the neighbouring mine. “From 1986 to 1996, the Campbell mine provided Placer Dome with a quarter to a third of its operating profits in each year; in 1996, Campbell was one of the lowest-cost gold mines in North America [at US$127 cash cost per ounce]. We now have a mine at equal their production at almost half their costs, for a fraction of their investment.

“At US$300/oz gold, annualized, we will have a gross margin of more than 71%, and net after-tax return of 29%, which is competitive with most high tech companies. The payback period will be 1.4 years. We are looking at a break-even price of US$129/ounce fully loaded [including financing charges]. The average life-of-mine cash cost will be US$88/ounce, assuming 83% gold recovery [from just the gravity and CIP parts of the mill]. This will be improved when we put in the refractory gold circuit.”

In early August, Goldcorp and CSA Management proposed a reorganization so that shareholders of both companies will receive new common shares of Goldcorp, and there will be only one class of shares. The company is therefore no longer protected from potential suitors. The reorganization should be complete in early November, which is when the Red Lake mine is expected to achieve commercial production.