Goldcorp (GG) was founded back in 1954 as a vehicle to allow investors to invest in a managed portfolio of gold-related investments. Over the years the company’s focus has changed from being a managed portfolio to one of the largest gold mining companies in the world with proven and probable gold reserves from all of the company’s properties reaching 60 million ounces as of December 31, 2010.
The recent purchase of Andean Resources (ANDPF.PK) highlights Goldcorp’s strategy of acquiring large, high quality assets in stable jurisdictions. The Andean purchase gives Goldcorp access to the 100% owned Cerro Negro project in southern Argentina which holds an estimated 3 million ounces of gold and 26 million ounces of silver, both numbers indicated and inferred.
Goldcorp recently sold its 10.1% stake in Osisko Mining (OSKFF.PK) in order to help fund capex. This should looked at not as a knock upon Osisko, as it has drilled and built out one of the largest gold projects in North America during the worst economic climate since the Great Depression, which speaks volumes about the quality of management at Osisko.
Now that the Penasquito buildout is mostly complete and the mine is producing, cash flow is flooding the coffers. With 17.8 million ounce proven and probable gold reserve and a 22 year mine life Penasquito is expected to produce negative cash costs when by-products are considered over the life of the mine.
Once the high-pressure grinding rolls come online production throughput will be able to ramp up to 130,000 tonnes per day.
Satellite production opportunities are available at Penasquito with Noche Beuna and Camino Rojo deposits.
Goldcorp’s second major mining camp, Red Lake is an historical deposit with decades of high grade gold production through different camps in the area.
Currently, the Cochenour gold discovery is under development. Originally acquired in the Gold Eagle purchase in 2007, the Cochenour discovery holds 5 million ounces of Gold trapped underneath a lake. Despite the obvious problems in mining out the gold, Goldcorp will be utilizing the current infrastructure in its Red Lake Complex to build an almost 5 km long high speed underground tram to access the deposit from below. The deposit is expected to be ready for production in 2014, while Goldcorp delivers an estimated 675,000 ounces of gold from deposits in the Red Lake camp during 2010.
The next growth driver will be the Pueblo Veijo mine project [Goldcorp 40%/Barrick Gold (ABX) 60%] in the Dominican Republic with 9.5 million ounces and a 25 year mine life. Production is expected to start in the 4th quarter of 2011 and the first gold delivered in 2012. Barrick is the operator of the mine.
From 2006 through 2008 cash margins held steady in the $540-$580 range increasing to $685 in 2009 and $869 in 2010 as lower cost mines come online and gold spot prices rise.
Earnings are rising significantly and operating cash flow is beginning to spike with the company taking advantage of low cash costs and rising gold prices.
Production is expected to rise by almost 70% in the next 5 years and the balance sheet is strong with $2 billion in cash and marketable securities and investments as of September 30, 2010.
Investors should closely watch the earnings release later this week for clues to strong earnings and cash flow with an eye to the progress of construction at Pueblo Veijo, costs and cash flow coming from Penasquito, and overall cash flow and earnings.
Technically, we are entering a strong resistance level in the 46-50 range and the stock is a bit overbought on the daily chart. If we were to break to new highs on strong volume it would be a sign that Goldcorp is going to continue its run from January lows.
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