The new-look Goldcorp

In the fury of all the gold company mergers and acquisitions of the last two years, Vancouver-based Goldcorp Inc. has changed more than any other producer, with new executives, operations and jurisdictions. Based on its market capitalization of US$18.0 billion, Goldcorp is now the third largest gold company in the world, with the lowest cash costs among the senior producers, and is on a path to grow much more.

Growth in 2005-06 through acquisitions

It’s not hard to track the recent history of the company by the numbers.

At the end of 2004, Goldcorp consisted of the Red Lake mine in Balmertown, northwest Ontario, and the much smaller Wharf Mine in South Dakota. The Toronto-based company founded by Rob McEwen in the mid-1990s had discovered high-grade deep reserves at the former Arthur White mine, renamed it ‘Red Lake’ and put it back in production in 2000. In 2004, Goldcorp produced 628,000 oz of gold at US$115/oz cash costs, ending up the year with 5.2 million oz of gold in reserves.

In February 2005, Goldcorp merged with Wheaton River Minerals Ltd. at a cost of US$1.9 billion worth of shares. Production for 2005 rose to 1.1 million oz of gold at US$22/oz cash costs (net of byproduct credits), plus 160 million lb of copper and 8.0 million oz Ag. Gold in reserves almost tripled to 14.7 million oz. The former head of Wheaton River, Ian Telfer, was appointed president and CEO of Goldcorp, and the head office was moved to Vancouver, B.C.

Growth accelerated in 2006. In April, Goldcorp acquired the lonore gold project from Virginia Gold Mines for US$420 million in shares. In May, the company purchased Placer Dome (CLA) Ltd. from Barrick Gold Corp. for US$1.6 billion cash. This included ownership of the Campbell mine, adjacent to the Red Lake mine. The end of August, Goldcorp merged with Glamis Gold Ltd. in a US$21.3-billion transaction. The head of Glamis, Kevin McArthur, became the president and CEO of Goldcorp in November, with Telfer moving to the position of chairman of the board.

Gold production for 2006 rose 50% to 1.7 million oz at a cash cost of US$33/oz, plus 155 million lb copper and 15.3 million oz of silver. Gold in reserves more than doubled to 39.7 million oz by the end of the year, plus the company had 778.9 million oz of silver in reserves (see the production and resources tables). Plans for 2007 and beyond

After two years of shifts and changes, the company has recently entered a new phase. “The first quarter of 2007 was the first one in which Goldcorp was not actively working on closing a major transaction,” said McArthur in a conference call on May 11. “The only transaction to date in 2007 has been the sale of Peak mine in Australia and Amapari mine in Brazil to Peak Gold Ltd.,” McArthur continued. “The intent was to simplify Goldcorp’s asset portfolio, sharpen the geographic focus and provide capital to fund future growth opportunities.”

The focus now is on organic growth through mine site exploration and building new mines. Goldcorp’s key priorities, according to McArthur, are to maintain high margins, the successful startup of the Los Filos mine, to ramp up production at Marlin mine and continue exploration, especially in the Red Lake area.

‘Goldcorp v.2007’ operates 11 mines in North, Central and South America; in Q2 2007, Los Filos is expected to become the 12th producer. Mexico is now the country of highest growth for Goldcorp. If this year unfolds as expected, the corporation will produce about 2.5 million oz of gold at about US$150/oz, plus significant byproducts in copper and silver.

The company is spending US$120 million on exploration in 2007, with 90% destined for properties surrounding its operating mines. Its two largest developments are the Peasquito open pit gold-silver-lead-zinc project in Mexico and the lonore underground gold project in Quebec. Articles in this issue cover the company’s Canadian operations.

Q & A Interview with Steve Reid

Goldcorp’s COO Steve Reid was “acquired” along with Placer Dome assets in 2006.

Australian mining engineer Steve Reid is the executive vice-president and chief operating officer of Goldcorp. He spoke with CMJ in mid-May from his Vancouver office.

CMJ: What were the corporate decisions that led to the company’s growth by acquisition in the last two years?

SR: Goldcorp has grown into an amalgamation of companies over the years, through the business acumen that Kevin [McArthur] and Ian [Telfer] brought to the company. Goldcorp had a very solid and reputable foundation, with the Red Lake assets underpinning the company. In 2005 Goldcorp acquired Wheaton River Minerals, which took Goldcorp from a two-mine operation to the international stage with five operations and two development projects. The operating style that Goldcorp adopted through Wheaton River is very decentralized, where the mining operations work autonomously towards the collective goals of the company. In 2006 Goldcorp acquired lonore and certain Placer assets from Barrick. In late 2006 we acquired Glamis Gold. Both Ian and Kevin found it better and more cost-effective to grow through acquisition. They had each acquired assets at low prices at the lower end of the gold cycle and, subsequently were able to grow their respective companies.

This company has come together in the last couple of years and has seen lots of change. That’s what our strategy is: staying still is not an option.

CMJ: Where is Goldcorp aiming to be in five years?

SR: Our gold production is expected to increase by over 50% in the next five years; there are no other gold mining companies that will have that kind of growth. ‘The new growth is flat’ is what people have been saying. Our aim is:

* to eventually grow production to 3-4 million ounces of gold per year while remaining a low cash cost producer. This production is sustainable and where we would like to be as a company going forward. This size is attractive to gold investors, mutual funds and pension funds.

* to operate and hold large gold reserves in safe jurisdictions.

* to remain 100% unhedged to gold. Goldcorp expects prices to go up and we want to be able to take advantage of those high prices and create more value for our shareholders.

* to attract and retain the best talent in the industry.

CMJ: What do you see as the top issues facing Canadian mining companies today? How is Goldcorp handling these issues?

SR: The shortage of assets in the mining industry is one. There were essentially no new gold discoveries between 1997 and 2002; once exploration started to pick up, there was a lag time until the first discoveries. That is why it was so important for us to make the acquisitions we did last year [lonore, Placer, Glamis]. We want to ensure our gold production increases over the next several years and we want to reach a sustainable level of production. There are not many ‘quality, world-class assets’ left. Goldcorp has added many to its portfolio over the last few years. The other top issues are replacing reserves, the rising costs of operating mines, tires, etc., and retaining qualified professionals.

It’s not only about doing well in the current boom times, but about having the best quality assets, like the Red Lake mine in Ontario, the lonore underground development project in Quebec, the Peasquito open pit gold-silver-lead-zinc project in Mexico and the Alumbrera mine in Argentina. That’s why we have developed six primary drivers:

* let people grow and develop;

* continue to improve safety at all sites;

* partnerships – internal, external and with the communities where we work;

* instead of looking at cash costs, which is really a negative value, we look at the margins–difference between the reven
ue and the expenses–that’s how you run a business;

* growing reserves, which is fundamental to the success of our business;

* growing the production at each operation.

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