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Goldcorp, Inc. (NYSE:GG)

Q1 2006 Earnings Conference Call

May 16, 2006 11:00 a.m. EST

Executives

Ian Telfer - President and Chief Executive Officer

Lindsay Hall - Chief Financial Officer

Analysts

David Stein - Sprott Securities Inc.

Haytham Hodaly - Salman Partners

Dan Misha - Shareholder

Norman Stamper - Shareholder

Lyle Walindey - Shareholder

Steve Butler - Canaccord Capital

John Tumazos - Prudential Equity Group

David Christie - TD Securities Inc.

Barry Cooper - CIBC World Markets

Larry Solomon - Solomon Capital

Jack Sullivan - Shareholder

Presentation

Operator

Good morning, and welcome to the Goldcorp first quarter earnings conference call for May 16, 2006. Your host for today will be Ian Telfer. Mr. Telfer, please go ahead, sir.

Ian Telfer

Thank you very much, Operator. Good morning, everyone, and welcome to our first quarter earnings call. Once again, we had an incredible quarter. Our earnings tripled to $92 million from $30 million a year ago, and earnings per share went from $0.12 to $0.27. Gold production increased from 275,000 ounces to 295,000, and gold sales were from 217,000 to 288,000. Cash costs were minus $88 per ounce, which of course is another by-product of silver credits, compared to $94 an ounce last year.

It was a very important and busy quarter for us, and subsequent to that quarter, on March 31, we completed the acquisition of Virginia Gold Mines with the Éléonore gold deposit. We are very excited about that. Then, of course, on May 12, we finally closed the agreement with Barrick to purchase the Placer Dome assets that we have been working on since last November -- again, a major milestone for the company.

Also, May 9th, our warrant holders voted in favor of early exercise of the warrants, and so we are confident now that will be going through and we will get $480 million sometime in the next 30 days, which we will use to pay down some of the debt that we took out to take care of the Placer asset acquisition.

Looking at the financial results, again, they are fairly dramatic, as the first quarter last year had Wheaton River in it for part of the quarter, but of course, at the present time, with the higher prices, that has both corporations together, so revenues went from $122 million to $286 million. The average realized price of gold per ounce went from $430 to $560. Earnings from operations almost tripled from $54 million to $144 million. As I mentioned, basic earnings per share went from $0.12 to $0.27, diluted went from $0.11 to $0.24. Cash flow from operations was flattish -- $80 million last year, $74 million this year. Again, there were some major tax disbursements that we had to make this year that knocked that down. Again, cash costs went from $94 to $88 negative.

Cash equivalent at the end of the year were about $170 million, but what is not shown there is we paid a deposit to Barrick of $250 million, so the real number was over $400 million. Total assets jumped from $3 billion to $5 billion, so the company is growing rapidly and having great success as it goes.

Touching on the operations, Red Lake tons of ore were up a bit from 57 to 62. The grade was down a bit from 104 last year to 59. Now, as we mentioned last year, the 104 was anomalous on the high side. The 59 is a little lower than average, but our guidance for the company for the year and our guidance for Red Lake for the year has not changed, and with underground mining, it goes up and down, and we more than make that up going forward.

Gold produced was lower because of the grade. It went from 198,000 down to 121,000. Gold sales also dropped, but of course the gold price was $429 last year and $557 now. Cash costs are slightly higher because of the lower volume and the lower number of ounces produced. It went from $81 to $130.

Alumbrera had a very good quarter. They are making some changes there, but the head grade went from 0.56 to 0.76, and the copper grade went from 0.49 to 0.63. Recoveries were flat -- 77 for both quarters and 89 or 90 for copper from last year to this year. So gold produced went from about 48,000 to 62,000, copper from 32,000 went to 40,000, and again the average price of gold was $417 last year, $577 now, and $1.62 last year and $3.25 now.

Anyway, operations at Alumbrera continue to be excellent. With these higher prices, they are able to re-work the pits slightly to increase the reserve and increase the mine life slightly, not in a dramatic way.

Luismin had a fantastic quarter. The grades were similar. 6.5 grams last year to a little over 6 grams this time. Similar grades for silver, 394 last quarter, 348 now. Recoveries, etc., in line. Production last year was 40,000 ounces of gold. This quarter, almost 48,000 ounces of gold. Silver, 1.9 last year to 2.1 this year. Cash costs up slightly from $86 last year to $117 this year -- still very, very low.

There are silver credits, of course, at Luismin, but because we are selling all the silver at $3.90, you do not see the full impact of today’s higher silver prices, so with a slight silver credit, these are great costs.

Amapari, its first quarter of commercial production, and I have to say we are not satisfied with the results we are getting there. It produced a little over 20,000 ounces in the quarter. This was certainly below plan, and recoveries are lesser than we had expected. I mean, the issues at Amapari are it is a start-up, it is the rainy season, it is the Amazon, and so we have had some teething challenges that we had not really expected. We are on top of those now, and we are making improvements as we go forward.

As a result of the low production, the cash costs are high at over $400, but we are making progress now and as we go forward, this will come right.

The Peak Mine had a reasonable quarter. Cash costs were down from $278 to $192, and production was up from $29,000 to $33,000, so they had a very good quarter. Of course, they are getting larger copper credits because of the price of copper, and so that certainly helped keep the cost down. In Australia, with cash costs of $192, it is one of the lowest cost mines in the country at the present time.

Wharf Mine, very small production, continues to make money at current gold prices, even though their cash costs are a little over $300.

Looking at Silver Wheaton, results have already been out for a while but it’s a fantastic revenue and profit generator. The price of silver went from $6.92 to $9.62, and of course, with the structure they have, their costs are the same at $3.90, so just the earnings from Silver Wheaton are over $11 million, so a big cash revenue generator for us.

On the project development side, the Los Filos project is moving ahead very, very well. We are very happy with the progress there. We of course have put Los Filos and El Bermejal pits together and we will have a single heap leach facility, and then mine from each of the ore bodies. Construction is well advanced and should be completed by the end of 2006, and commercial production should start in the second quarter of 2007. We have either committed or spent over 70% of all the capital, and so we are confident that both the timing and the cost of this project going forward.

Of course, our exploration project at Éléonore, as I mentioned, we finally closed that transaction. We have a very aggressive exploration program going on at the present time and just to remind people that during the time from when this deal was announced to the present time, while the drilling continued, we did not have the result that date. We did not want to impact the shareholders of either company during that period, so we had about 17 kilometres of drill core that is being logged now and sent to the lab, so over the next few months, we will have a significant number of exploration results to make public. While we have not [announced] yet, we are very excited about what we see and very confident that this will turn into a major gold cap in Canada.

On the expense side, our depreciation/depletion has jumped with the Wheaton acquisition and repricing of those assets from $17 million to $46 million. Just to make a point that because of the way we have accounted for the acquisitions, both at Wheaton and then at Goldcorp, we have done our best to allocate these purchase prices to the assets we have acquired. We have a very, very small number in the good will category on our balance sheet, and as a result, we are averaging over $150 an ounce in depreciation, so we are taking the hits as we go, and in spite of that, we earned these large earnings of over $90 million for the quarter. Just to put it in perspective, looking at our two large competitors, Barrick and Newmont, $150 is more than double their depreciation rate per ounce, so I would say the quality of our earnings are extremely high, but these depreciation hits are hitting these earnings.

Corporate admin side, it has jumped, as one would expect as the company has grown, it is about $8 million a quarter here. We expect this will rise to close to $10 million a quarter going forward. It works out to about $20 an ounce. We will work to get that lower, but that seems to be a number that we will have going forward.

In summary, it was a great quarter for us. We are very excited about finally acquiring the Placer assets. The integration process at Red Lake is underway. We are looking at numerous ways to save money on both sides. We are also looking at putting the first passageway between the two mines, so we will have some type of ceremony up there that the area has been waiting for for years, to have these two ore bodies put together, and the future of the whole project looks fantastic going forward.

I have no news to report on discussions with Kinross on the three joint ventures we share with them. We have gone back and forth a little bit, but we have not reached any agreement with them. It is hard to say when and what will evolve from that, but I expect at some point there will be some rationalization of those assets. As far as other acquisitions are concerned, we are always on the lookout for new opportunities. We said strategically that we would like to keep our production at the 2.5 million to 3 million ounce level going forward for a long period of time, so we are tending to look at assets that would help us fulfill those projections.

With that, Operator, I would like to turn it over for questions.

Question and Answer Session

Operator

Thank you, Sir. We will now begin the question and answer session.

(Operator Instructions)

Our first question comes from David Stein. Please go ahead.

David Stein - Sprott Securities Inc.

Thank you, good morning, everyone. First question on Red Lake, could you reiterate or remind us what your guidance is for the year, and maybe comment on how we will see the production over the next few quarters given the integration, the additional development that is going on there. Also, could you maybe just tell us, I am assuming that going forward, you will report Red Lake as one operation, one single operation? Maybe just confirm that.

Ian Telfer

All right, well, for the guidance for the year, I might pass that on to the team that is in Vancouver. I happen to be out of Vancouver today. I think going forward, at least for a while, we will still report them as two separate entities. There is a lot of integration to take place in a number of areas, so I think you will have to -- you can add them up yourself, obviously, but I think we will be reporting it as Campbell production, Campbell costs, Campbell statistics, and Red Lake. I expect that will happen certainly for the rest of this year. Beyond that, we will have to see.

If I could just ask someone in Vancouver to comment on -- I do not want to give a wrong number here, but what is our guidance for Red Lake for this year?

Unidentified Corporate Representative

David, we are looking at still the same number, around about 600 from Red Lake, and we are driving towards the boundaries as Ian mentioned, and we are hoping to be able to put some more ore up to the Campbell mill, which has actually got some spare capacity. Hopefully we can make some of that happen in the second half.

David Stein - Sprott Securities Inc.

Okay, so are we going to see sort of to expect 600,000 ounces more tonnage, but a little lower grade? Is that fair?

Unidentified Corporate Representative

Yes, maybe a little lower grade overall, mainly because we are concentrating on developing those two drips heading towards each other. We have been putting a lot of effort into providing the shop with more mine site development to make sure that timetable is on budget or ahead of budget.

David Stein - Sprott Securities Inc.

Okay, great. On Amapari, can you tell us how April has gone, and if you are starting to see an improvement in the recoveries? Maybe sort of how long you expect it to take to get through these teething issues?

Ian Telfer

Yes, we are seeing improvements in April. It is continuous. It is probably slower than we would like, and to be frank, the challenge is on the agglomeration side. The mixing of the line and cement with the ore in that environment, it is always an art and a science. So we are working with that, and that seems to be the key. So at this point, that is really all we are going to say, but we are making improvements. We still love the project, and we are still confident that we are going to get significantly higher recoveries out of it as we gain more experience.

David Stein - Sprott Securities Inc.

Okay. When you are stacking and you are expensing everything and later on, when you do start to get the recoveries and that direction goes through, essentially since those costs have already been expenses, you will be getting that gold at a lower cost. Is that fair?

Ian Telfer

Well, you expense part of it, but you also inventory part of it, so we do not want to mislead people, that it is all going to dramatically drop. It is a combination of those costs.

David Stein - Sprott Securities Inc.

Finally, I know you have talked about this in the past, but how were you able to realize such a huge copper price in the quarter, given that I do not even think the copper price traded at $3.22 in the quarter. If it did, it was very late in the quarter.

Ian Telfer

David, it’s magic, of course. No, the reason we get the higher prices, as you know, there is a lag time from when we deliver and when the ore is produced and when it is priced, and so what has happened with this dramatic run-up in the copper price is that we are getting higher prices for copper that we delivered in a previous quarter, so that gets tacked on, or that is the only way to show it as a higher copper price, to show the revenues in the quarter.

David Stein - Sprott Securities Inc.

So it is really like a positive adjustment from Q4, yet you add it to the revenue in Q1?

Ian Telfer

That is correct.

David Stein - Sprott Securities Inc.

Okay, that is all for now. Thanks a lot.

Operator

Thank you. Our next question comes from Haytham Hodaly. Please go ahead.

Haytham Hodaly - Salman Partners

Good morning. A couple questions for you. I guess just to follow-up on David’s question, what was that price adjustment from Q4? I cannot seem to find what the actual amount was.

Ian Telfer

There may be someone in Vancouver who can answer that.

Lindsay Hall

Haytham, it is approximately $30 million.

Haytham Hodaly - Salman Partners

And that is $30 million U.S.?

Lindsay Hall

That is correct.

Haytham Hodaly - Salman Partners

Okay, perfect. Next question, I had read somewhere previously, and I could be mistaken on this, that the clustered cash flows from the assets you are acquiring would be to your account from the time of the announcement of the acquisition. Is that still correct? If not, is it from the time of the closing?

Ian Telfer

Lindsay, do you want to take that?

Lindsay Hall

No, Haytham, you are absolutely correct. There are cash flows from the Placer assets that we acquired is to our account from October 31 ’05 through to the closing. So when we closed with Barrick last week, that served as one of the adjustments to the final purchase price.

Haytham Hodaly - Salman Partners

Okay, so that final purchase price already included the cash flows?

Lindsay Hall

That is correct, Haytham.

Haytham Hodaly - Salman Partners

Okay, perfect. Another couple of questions. With regard to Los Filos, you gave us the idea of production forecast for 2007-08, or that was 2006-07-08, that was appreciated. What do you foresee cash costs will be relative to what the old project was looking like?

Ian Telfer

Again, we expect commercial production to start in the second quarter of ’07, and we are looking at a couple hundred thousand ounces in ’07 of commercial production.

Haytham Hodaly - Salman Partners

Right, and the cash cost associated with that, you think?

Ian Telfer

We still think they are going to be close to $200, maybe a little higher than that, but…

Haytham Hodaly - Salman Partners

Ramp up to 350?

Ian Telfer

That is correct. That is exactly right. In ’08, we expect 350,000 ounces.

Haytham Hodaly - Salman Partners

Okay, and a similar cash cost?

Ian Telfer

That is correct.

Haytham Hodaly - Salman Partners

When will we expect to see the Éléonore resource reserve update throughout this year?

Ian Telfer

Well, as I said, we have 17 kilometers of core in there now. We have five drills turning as we speak, so we want to take a look at this exploration-wise before we jump to too many conclusions. But as the year goes on, I think the size and the shape of this will start to take shape and we may be able to say something by the end of the year.

Haytham Hodaly - Salman Partners

Okay, last question. You touched a little bit on this, and I know you did not want to say too much on Amapari, in terms of what you are seeing in terms of recoveries improving, etc., going forward, what was your previous cash cost guidance on Amapari? Based on the numbers we saw in this last quarter, what do you think estimated range it will be in for this year?

Ian Telfer

Well, certainly over the past year, we gave out a couple of numbers. I think the most recent ones were probably in the $180 range, certainly below $200. It appears now again that just keeps going up, and we are having some challenges with it. It would certainly be over $200. I would expect it will be in the $250 range, but that is a guess.

Haytham Hodaly - Salman Partners

I was just looking for a range. Wonderful, that is all the questions, I have. Thank you.

Operator

Thank you. Our next question comes from Dan Misha. Please go ahead.

Dan Misha

Thank you. I have been impressed over the last year with how you have been able to make acquisitions and keep your costs the lowest million ounce producer of gold, and debt level zero. My question going forward, with all your future projected acquisitions, going out into ’07-’08, what kind of a material affect will that have on your earnings momentum? Will things for a while hesitate or do you think they are going to begin to accelerate during that time, ’07-’08? Because to me, when you acquire debt to grow, there seems to be a little bit of a drag on earnings. I just need to understand. I know you are growing. I appreciate that. I have thousands of shares of ownership. I need to know what material affect can debt have moving forward?

Ian Telfer

Certainly a good question and you are right. Up until now, we have been debt-free. We did borrow over $1 billion to close the transaction on Friday with Barrick. Then, as I mentioned, of course we expect to get in over $400 million from the early exercise of our warrants. So that should knock our debt down between $700 million and $800 million, considering our market cap is $12 billion or $13 billion. That is not an unreasonable amount of debt.

Our sort of EBITDA of the company at current prices, or even slightly lower prices, is almost $1 billion a year. So going forward, we expect that we should be able to finance the CapEx, or the capital expenditures, of new projects from our cash flow, or almost from our cash flow. So we do not expect to incur significant amounts of debts to build new mines going forward. So it should not have a negative impact on earnings. There would be an interest expense for the debt that we do have, but compared to our earnings, it should be fairly insignificant.

Dan Misha

Thank you.

Operator

Thank you. Our next question comes from Norman Stamper. Please go ahead.

Norman Stamper

Hello, I am a shareholder at Goldcorp. I have a few questions, please. I thought you were planning to produce about 2 million ounces of gold in 2006, but there was less than 300,000 produced in the first quarter. Are you still on target for 2 million ounces for 2006?

Ian Telfer

Certainly. What we had said when we announced the Placer acquisition that on an annualized basis, and this was just to help people understand the company, on an annualized basis, when you put Goldcorp and Placer, that number was 2 million ounces. With us only closing this deal in May, then of course we are only going to have the Placer assets for the last, I don’t know, six, seven-and-a-half months of the year.

So while the annualized number is 2 million, it may be just a little bit below it. I think the guidance that we are giving out for our own sort of accounting production going forward is around 1.7 million ounces, so you are right. You would not get there with our first quarter production, but then in the first quarter, we did not have the Placer assets. So the numbers are the same.

Norman Stamper

Do you think the market is looking at the first quarter -- I looked at the report as positive, $0.27 compared to $0.12, but I noticed the stock is dropping today, again. Do you think the market is looking at your first quarter report negatively? If so, why?

Ian Telfer

I do not think so. I am not looking at a screen, but the last time I checked, the companies that we sort of compare ourselves to were also struggling in the last few days, and also struggling today. But I think anyone will view this as a very positive quarter. Our guidance for the year has stayed the same. Our cash costs are much lower than people expected. Our earnings, as you say, beat most consensus estimates. So I do not see how anyone could look upon this as anything but positive. We sure look at it that way.

Norman Stamper

Do you have any guidance for estimated earnings per share for 2006, for the entire year?

Ian Telfer

No, we do not give out guidance on earnings per share. We just give people an estimate of production and an estimate of cash costs, and then we leave it to the analysts to come to their own conclusions. And there is no doubt over the past six or nine months, the analysts estimates have converged and they are not very different from what we earn when we have a reasonable quarter. So you can look to the analysts to get a pretty good idea of what we expect we will do.

Norman Stamper

Average total cash cost for Goldcorp for the gold production in 2006, do you have a projected figure for that? For the entire company, not mine by mine.

Ian Telfer

Sure, it will be below $125.

Norman Stamper

Excellent. One more thing, do you think the exercise of warrants to raise money for the purchase of Barrick, to pay down your debt, is dropping the price of the stock?

Ian Telfer

Not at all.

Norman Stamper

Okay, there is one thing I would like to make sure I understood. The meaning of depreciation hits, when you were speaking about that. What does that mean?

Ian Telfer

Well, it just means that our cash costs are extremely low, but our accounting -- for example, our cash costs, say they are $125 for the year, but with an added $150 in depreciation, it means that our total production costs is $275, and I am just pointing out to people that our competitors, because they have parked large amounts of good will on their balance sheets, have much lower depreciation per ounce. That is all. There are two ways to do it. We are doing it one way.

So what it does mean is that our earnings, as robust as they are, have had a significant hit from the depreciation because of the series of acquisitions that both Wheaton made and then Goldcorp has made. So I just wanted to make that point. That’s all.

Norman Stamper

So total cost then would be about $275?

Ian Telfer

That is correct.

Norman Stamper

Thank you very much.

Operator

Thank you. Our next question comes from Lyle Walindey. Please go ahead.

Lyle Walindey

Good morning. I am a very pleased shareholder. Goldcorp and Silver Wheaton, could you touch on the Saskatchewan minerals? Is this operation still profitable or is it worthy of selling?

Ian Telfer

Well, actually we sold that project. I believe that closed at the end of last year or in the first quarter. It was not a core asset to us, so we disposed of it. We thought that was in the best interests of the company. So I am sorry, we do not have it any longer.

Lyle Walindey

Thanks very much. I did not understand that, then. Could you touch on the Pelly Mountain operation?

Ian Telfer

I’m sorry, which one?

Lyle Walindey

Pelly Mountain?

Ian Telfer

I will defer that to the group in Vancouver.

Unidentified Corporate Representative

No, I am sorry, I am not aware of that property.

Lyle Walindey

You have never heard of Pelly Mountain, the gold festival, diamond festival operation that Goldcorp is exploring?

Unidentified Corporate Representative

I think we have a residual interest in that, but it is not something that I focused on just lately. I am afraid that I cannot give you any comment.

Lyle Walindey

That’s quite all right. You have a wonderful day. Thank you.

Operator

Thank you. Our next question comes from Steve Butler. Please go ahead.

Steve Butler - Canaccord Capital

Good morning. Just a couple of questions for clarification. Ian, what would your accrued copper price be on unsettled concentrates at the end of Q1? Of course, in a rising copper price environment, you might get some positive adjustments. Is that correct, on your copper comps?

Ian Telfer

That is correct, and to answer that question, I do not think we will know until towards the end of the quarter. But you are absolutely right, in a rising market, it is certainly going to help us, and in a falling market, we will feel it the other way.

Steve Butler - Canaccord Capital

So you are saying there is no accrual per se on the -- say you have a production, or is it just based on sales?

Ian Telfer

It is based on the settlement. It is based on the price they settle at when they actually change the ownership of the copper at the smelter, so it is still going on.

Steve Butler - Canaccord Capital

The other question was when we will see -- I know we are making a lot of money here, or you are making a lot of money here at the silver prices, Ian, but when we will see the inflation factor set in upon the Silver Wheaton’s cash cost, up from $3.90 with the inflation factor. What year would that set in?

Ian Telfer

There is a three-year fixed price, and then it starts after that, so it varies contract to contract, so you can, you know, when the contracts were first initiated, so I think there is almost three years left on the Peruvian one. There is probably over two years left on the other two, or close to that.

Steve Butler - Canaccord Capital

Do you guys have any particular guidance for Alumbrera in terms of how was this quarter versus the rest of the year, with 62,000 ounces of gold and 41 million pounds of copper. How does Q1 compare to the rest of the year?

Ian Telfer

I think it is pretty indicative.

Steve Butler - Canaccord Capital

Last question, Los Filos, you mentioned 70% of CapEx committed or spent, and you have spent $112 million, so what is the balance, guys, to spend at Los Filos, plus Bermejal on the CapEx? Do you have a number there?

Ian Telfer

I can guess. I will pass it to the guys in Vancouver.

Lindsay Hall

I have about $100 million left to spend.

Steve Butler - Canaccord Capital

Okay, thanks very much.

Operator

Thank you. Our next question comes from John Tumazos from Prudential. Please go ahead.

John Tumazos - Prudential Equity Group

Congratulations on everything, Ian. If you were looking out five years, imagining it is 2011, what would the perfect Goldcorp look like in terms of the number of mines operated, the number of continents, the volume of gold output, amount of debt -- those sorts of things. I know that there is a lot of details along the way, but what is the roadmap or the goal you are trying to become? I know you want to be better than Newmont or Barrick. I do not know how that translates into the mechanics of being better though.

Ian Telfer

Sure, good question. Looking out five years, we would like to still be in North and South America. Like all gold company’s CEO’s, you would always rather have fewer large mines than a large number of small mines, so we would like to hopefully upgrade our portfolio over that five-year period. Not that we do not like anything we have now, but it is just better, we believe, to have large operations, and the Campbell Red Lake is a fabulous example. That is almost a million ounce producing ore body now, not that we will be able to get our hands on another one of those, but that is the type of thing we are interested in doing. We would like to have our production between 2.5 million and 3 million ounces.

We do not think we want to grow to the sky and compete directly with Barrick and Newmont. And we would like to constantly be the low-cost producer. That would mean we probably have developed or be developing at least two new mines between now and then. We expect that our share of production from them would be between 250,000 and 400,000 ounces from each one of these types of developments. We would expect to do that with cash flows.

So we would have almost 3 million ounces of production, be the lowest cost producer, and then looking forward to 2011, still be able to explain to people like you how we can continue to have that level of production with no big drop-off’s ahead of us, and no need to go out and issue paper or acquire another company and dilute ourselves.

So that is our ideal vision.

John Tumazos - Prudential Equity Group*

Ian, that was a superb answer. Is the Virginia acquisition one of those two mines you are going to build?

Ian Telfer

Well, you know…

John Tumazos - Prudential Equity Group*

Or is there another one in addition?

Ian Telfer

I would say the Virginia one will certainly get built during that period of time, but my guess is there will be a couple more, in some sort of process during that period.

John Tumazos - Prudential Equity Group*

Thank you very much.

Operator

Thank you. Our next question comes from David Christie of TD Newcrest. Please go ahead.

David Christie - TD Securities Inc.

Most of my questions have been answered, but just quickly, could you just remind me how much you are going to expense on exploration this year? Also, what will the long-term debt look like after the exercise of the warrants is done?

Ian Telfer

I will take the second half. The long-term debt after the warrants will be a little over $700 million. Exploration, I will pass that to the guys in Vancouver.

Lindsay Hall

We think it is around $20 million a year.

Ian Telfer

Dave, just let me make a comment on that. That $20 million is exploration that is in addition to the normal type mine exploration that gets capitalized, so the total number is significantly larger than that. I do not want to leave the impression we are not exploring. We explore extensively around all of the operations, but we do very little grassroots, but the $16 million is the part that is expensed. Anyways, sorry, go ahead.

David Christie - TD Securities Inc.

That’s fine. At Luismin, could you just remind me what your guidance is for the year on production and cash costs?

Ian Telfer

I will pass that to Vancouver.

Lindsay Hall

I am just looking it up. We have Luismin guidance for the year is about 140,000 ounces, and cash costs after the copper credits is around $60.

Unidentified Corporate Representative

Silver credits.

Lindsay Hall

Silver credits, I am sorry.

David Christie - TD Securities Inc.

What is the [absorption] of that?

Lindsay Hall

It is about $3.90 silver.

David Christie - TD Securities Inc.

Right, yes, it is $3.90. Okay, perfect, thank you very much.

Operator

Thank you. Our next question comes from Barry Cooper of CIBC World Markets. Please go ahead.

Barry Cooper - CIBC World Markets

Good day. Ian, I understand your provisional pricing on Alumbrera for the copper, but just wondering, why does that not apply to Peak? At least, it does not appear to apply to Peak in the same way. Is it not the same concentrate, effectively, that you are dealing with in the time lag?

Ian Telfer

I will pass that to Vancouver.

Lindsay Hall

It does at Peak, it is just Peak is not a large part of our operation. It is just not that significant to the numbers that we are seeing in the quarter, but it does apply to Peak.

Barry Cooper - CIBC World Markets

No, I guess what I was looking at was the $2.21 realized price coming from Peak and the $3.25 come from Alumbrera, which is more than a dollar difference.

Unidentified Corporate Representative

At the Peak, there is a completely different PCRC regime and the timing is not necessarily the same as Alumbrera either, on the closure of the contracts.

Barry Cooper - CIBC World Markets

So it is a timing difference more than anything else?

Unidentified Corporate Representative

We have a completely different marketing arrangement there.

Barry Cooper - CIBC World Markets

Okay, so the carry-forward then is not anywhere near as much as what it is on an upward moving copper price?

Lindsay Hall

That is correct, Barry.

Barry Cooper - CIBC World Markets

You are doing some work at Alumbrera. I know you increased the reserves there in the past. You were hinting at maybe getting a little bit of a boost on the reserve. Any idea on the sensitivity as to what you might expect with higher commodity prices?

Unidentified Corporate Representative

Well, I do not want to speculate too much, Barry. It just depends what middle prices we put into the pit, but, as you are well aware, the pit is pushing its limits on the strip ratio because we are pushing back into the edges of the [cobritor] but we are still hopeful with the change, it might go into the block model, and a little bit more drilling, there could be a bit more life there yet. Again, we do not want to speculate on how much.

Barry Cooper - CIBC World Markets

Is there anything that can be done to steepen the pit walls?

Unidentified Corporate Representative

That is actually being done at the moment. We are going to double and triple benching. If you read some of the quarterlies over the last year, we have actually spoken about that every time. A lot of that double benching and so on is actually working quite well.

Barry Cooper - CIBC World Markets

Finally, on Amapari, the tons to the pad, what is the issue there? Is it just weather or is it equipment?

Unidentified Corporate Representative

With tons to the pad, it is just the wet season, as you can imagine. What happens with a lot of mines with sticky ore, you find out where your pinch points are, so we have been busy retrofitting air cannons and polyurethane, and all sorts of mechanisms to make the ore flow better. We are also slowly working on the productivity of the stacker and reclaimer, which has been climbing all the time.

Barry Cooper - CIBC World Markets

Okay. Thank you.

Operator

Thank you. Our next question comes from Larry Solomon of Solomon Capital. Please go ahead.

Larry Solomon - Solomon Capital

Just a question with regard to depreciation. Was this a new decision or the idea of being conservative on it, was that news to the street or is it something that everybody should have known before?

Ian Telfer

No, it is not a new decision, but with the Goldcorp acquisition of Wheaton last year, for the second and third quarter last year we had done a preliminary sort of purchase price allocation, which is you take the amount paid out of the $2 billion or so dollars, and you decide where to assign that purchase price.

In the fourth quarter of last year, we came to the final numbers, so our depreciation jumped in the fourth quarter last year, and I just wanted to reiterate to people, so it was not a surprise, and I just want to reiterate to people that we will have depreciation of that magnitude going forward. On the one hand, it does hit our earnings. On the other hand, we think it is the most conservative way to account for acquisitions, but it also, I think, dramatically improves the quality of our earnings compared to some of our peers. That’s all.

Larry Solomon - Solomon Capital

Right, obviously it is not a cash flow item. I am looking at the stock action and I am just trying to understand. Obviously the price of gold has come off for a few days. It is actually up a bit today. I am just trying to see if there was something in the report that is not pleasing people, whether the conservative approach and therefore not showing it as much on an EPS line, obviously cash flow is the same. As to what is happening, how are the street describing this? Are people not pleased with the quarter? Or are people, with the depreciation thing, is that going to cause the numbers not to be quite as good?

The only thing I heard was the weather in that one area where it is going to take a little longer to get things up to where it was expected, but aside from that, it sounded like things were going pretty well.

Ian Telfer

I think you are reading it right. Things have gone extremely well. No, it is not a surprise to the street, as you could see. Our earnings and the consensus earnings were very close. We beat some analysts. Some analysts had something one or two pennies higher, but no, we are performing as the street would expect. So far, anyway, there does not seem to be any negative reaction to the earnings. We think they are fantastic. We made almost $100 million. Companies four times our size certainly do not make four times that amount of money.

Larry Solomon - Solomon Capital

What should we look for as far as share count by the end of this year? What are the pushes on that?

Ian Telfer

Yes, well…

Larry Solomon - Solomon Capital

Warrants have to be factored in, but…

Ian Telfer

Exactly right. I have a number in front of me, but I will pass it to the guys in Vancouver, who have a number right in front of them.

Lindsay Hall

Yes, I am looking at something after the warrants, the pick-up of the warrants and the issuing of new warrants, something like 437 million shares would be outstanding on a diluted basis.

Larry Solomon - Solomon Capital

This is fairly simple, just my problem not knowing the number right now -- where are you right now on this?

Lindsay Hall

As of today, we are at around 364 million shares. The warrants will be about 54 million, and then you have to factor in some options and the new warrants, to come up to my number, some 437. That is as of today.

Larry Solomon - Solomon Capital

Last question, just kind of like where the street is, so to speak. Where are people to this year, from an earnings point of view? Factoring in the additional shares, factoring in the whatever it was, the 1.7 million or so, on the outside -- where do people come out on this?

Lindsay Hall

As I say, we do not give guidance. You can go and look at the consensus numbers. As I say, there is not a big scatter on them. They are fairly consistent and we are not uncomfortable with the estimates that are out there.

Larry Solomon - Solomon Capital

Okay, thank you.

Operator

Thank you. Our next question comes from Jack Sullivan. Please go ahead.

Jack Sullivan

Mr. Telfer, you stated on I believe it was ROB TV, somebody asked you a question regarding hostile takeover possibilities and what you can do to protect us shareholders against that, and you mentioned that the best defense against a hostile takeover would be a strong share price.

Ian Telfer

Correct.

Jack Sullivan

Is that correct? Okay. Well, I mean, today we are down 5%, with gold up. We were down in the last four days 23%. That is not normal. Gold has dropped a little bit. It is still near $700. This is becoming -- I mean, I understand what that analyst was just saying to you. Something is amiss here. I do not know what it is, but the volume has been massive on the sales side, and something is going on here. The gold price has not collapsed at all. It has gone down a little bit. What is there to protect us now from some vulture coming in and basically stealing us for nothing, because we are dropping every second here as I am watching the screen here?

Lindsay Hall

In fairness, Jack, Ian is not in front of a screen. What we are seeing here in Vancouver in front of us is our stock is dropping similar to the rest of the stock in the gold industry, so we do not see anything untoward in our stock, vis-à-vis our competitors, but I will let Ian answer the last part of our question.

Ian Telfer

Sure. Well, listen, as I say, I still say that the best defense is a high stock price. Anyone that has followed Wheaton or Goldcorp for the past five years, it has been the number one performing stock for that whole period of time. Prior to this dip that has hit all of the stocks, we were up in the last 60 days, we were up 40%. You know, we are in this for the long term. Shareholders that have been with us for any period of time have done spectacularly well. Most of the funds that hold the stock, this has been their best-performing stock, and so if you just bought your stock yesterday, I feel sorry for you, but stick with us, and in the long term, you will do extremely well.

Operator, we will just take one more question. Thank you.

Operator

Thank you. Our next question comes from Haytham Hodaly with Salman Partners. Please go ahead.

Haytham Hodaly - Salman Partners

Thank you, Operator. Ian, just one final question. I guess most of my questions have been answered. Just curious what the effect of the changing gold price had on the closing of the Placer transaction. What was the end adjustment for hedging?

Ian Telfer

Sure. The way the hedging adjustment was calculated was we announced this deal November 1, I think, and because Goldcorp was unhedged and always wanted to be unhedged, we made an agreement with Barrick that when they got 66% of the shares of Placer, we would put a pin in the hedge book that day and we would be responsible for 13% of the hedge book. So between November 1 and I think the middle of February when they got their 66%, the price of Goldcorp went up dramatically.

When we initially made the calculation, we thought that the hedge book would cost us about $100 million to take our share of. With the rise in the price of gold, which of course was good for all of us and good for all the reserves we were buying, our ultimate cost on the hedge book was about $175 million, and then it stopped right there. Of course, since February 15th, the price of gold has gone up even higher, but we have been protected from that point in time. So the final number that we paid on Friday just included the adjustment in the hedge book to February 15th.

Haytham Hodaly - Salman Partners

Perfect, that is all I needed to know. Thank you.

Ian Telfer

Great. Well, thank you very much, everyone. Appreciate your interest, and stay tuned. I am sure we will have more announcements in all categories. Take care. Bye-bye.

Operator

This concludes today’s conference call. Please disconnect your lines and have a great day.

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Source: Goldcorp, Inc. Q1 2006 Earnings Conference Call Transcript (GG)
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