Selling an idea

Honest Ed’s is a large discount store on the west side of Toronto that is known for its loud, corny advertising banners with low-brow artwork. You may laugh at the humour or not, but the crowds keep rolling in; visitors to the city are often laden with bags from Honest Ed Mirvish’s emporium.

Investors who follow mining stocks are already familiar with the Honest Ed-style in-your-face messages (sans humour) being disseminated by the mid-tier Toronto-based gold miner, Goldcorp Inc., often decorated by the notorious Apollo’s hand cracking the whip. The corporate profile in the Goldcorp 2003 Outlook book (something like an annual report without the boring parts) is headlined: “Operations–100% owned! 100% North American! You Can Sleep at Night!” Is this simple, bold and refreshing, or simplistic and tasteless? More important, does it work?

The company is clearly achieving financial success. The chart on page 11 shows that Goldcorp occupies spot No.24 amongst Canadian public mining companies, based on its revenues of Cdn$209,755 in 2002. Goldcorp would rise to 21st place based on its assets of $718,303. But based on its net earnings of $104,630 (a spectacular 50% of revenue) its position would shoot up to 7th place. Its net cash (it is debt-free) at the end of 2002 was better than that of the world’s top five gold companies combined.

In our relentless attempt to get to the bottom of every new trend, CMJ interviewed vice-president of corporate development Chris Bradbrook, architect of the campaign that keeps Goldcorp in the eyes and ears of the public.

Surprisingly mild-mannered, Bradbrook has a masters degree in geology and worked for 15 years directly in the mining industry, for companies including Lac Minerals and Echo Bay. Following six years as an analyst he joined Goldcorp in 2001. “I guess my role in the company is to bring experience from several sides of the fence.”

Goldcorp has a 82,000-ounce/year gold mine in South Dakota and a sodium sulphate mine in Saskatchewan, but its raison d’etre is the Red Lake gold mine in northwest Ontario that produced 525,000 ounces of gold last year at a cash cost of US$65/ounce. Although the mine has operated since 1948, it closed in 1996 due to a labour strike, and did not reopen until mid-2000, reaching commercial production the beginning of 2001 (see article in CMJ October 2000). That was when the current phase of marketing to investors began.

The main reason for the Red Lake mine’s outstandingly low operating cost is the very high grade (>2 ounces Au/ton) of the High Grade zone discovered in 1995 and subsequently expanded.

“Getting the Red Lake mine running was critical to the company,” says Bradbrook. “Once that was working obviously then you had a much better story to tell; it wasn’t a promise any longer.” At about the same time, Goldcorp’s chairman and CEO Rob McEwen and Bradbrook felt that the cycle of the gold market had changed to the beginning of a bull run, another good story to tell to investors.

“Two years ago, hardly any of the gold companies would ever mention gold [in presentations]. They would show you their trucks or show you their mines, but they would not have told you why you should buy gold stocks. I have seen that change markedly, but there’s still lots of work to be done. One per cent of the world’s equities are in gold, so 99 out of 100 people effectively don’t care or don’t know. All you’ve got to do is double the number of people who are interested in gold to create a much bigger investment pool.

“It’s not a matter of trust. A lot of investors just don’t understand what it does. Think of it as portfolio insurance. If we’re right, the stock market is at best going sideways. When the market goes sideways or down, historically the gold price has risen.” Page 4 of the 2003 Outlook is headlined “Why Invest in Gold?” and explains how holding gold can cushion investments during long bear markets.

Goldcorp is attempting to increase its number of shareholders and to increase its share value, using a number of vehicles extending well beyond the usual literature, trade show sponsorships and web site information.

“Rob [McEwen] was innovative in using the web,” says Bradbrook. In 2001 McEwen launched the Goldcorp Challenge, a contest allowing anyone Internet access to the Red Lake property drill hole database, in order to submit their best exploration target suggestions.

Regarding the swish receptions that Goldcorp has held following its last two annual meetings, he says, “Our shareholders have become very loyal. We had more than 400 at this year’s annual meeting. The party is a way of celebrating and a way of educating the shareholders. The executives each get to talk. We also invite suppliers to be there so shareholders can talk to them. People see a good show. It looks like a million dollars, but doesn’t cost anything like that.”

Goldcorp wants to stand out from the crowd, Bradbrook continues. “We want to be in the spaces that are not crowded [with other gold mining companies]. We have a big presence at Globe Investor [the Globe & Mail’s investors web site] where we advertise next to all the banks.”

“Look at the radio spot on AM 680 talk radio. People thought we were crazy to broadcast an invitation for investors to come for lunch, but that has been one of our most successful methods. The lunches that the company puts on every week are another way to make management accessible and to keep investors engaged.”

He adds: “Two years ago we realized that we were under-owned in the United States, with only 5% of our shares trading there. The US market dwarfs the Canadian market. Now more than 60% of our volume is traded on the New York Stock Exchange, so we were successful in reaching out to the US market.”

The result–probably due to a combination of both corporate performance and the adept telling of the story–has been a sharp increase in share price on the Toronto Stock Exchange from Cdn$4.65 the end of 2000 to $20.06 the end of 2002, and a similar increase on the NYSE. It’s hard to argue with success like that.