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Goldcorp Inc. (GG)

Q1 2007 Earnings Call

May 11, 2007 12:00 pm ET

Executives

Jeff Wilhoit - Vice President, Investor Relations

Kevin McArthur - President, Chief Executive Officer, Director

Steve P. Reid - Chief Operating Officer, Executive Vice President

Lindsay Hall - Chief Financial Officer, Executive Vice President

Charles A. Jeannes - Executive Vice President - Corporate Development

Analysts

John Bridges - JP Morgan

Mark Smith - Dundee Securities Corporation

Tony Lesiak - UBS

David Stein - Coremark Securities

Steve Butler - Canaccord Adams

Victor Flores - HSBC

Patrick Chidley - Barnard Jacobs Mellet

Barry Cooper - CIBC World Markets

Haytham Hodaly - Salman Partners

Presentation

Operator

Good day and welcome to the Goldcorp 2007 first quarter results conference call for May 11, 2007. Today’s conference is being recorded. Your host for today will be Kevin McArthur, President and Chief Executive Officer of Goldcorp.

I would now like to turn the meeting over to Jeff Wilhoit, Vice President of Investor Relations, for opening remarks. Please go ahead, sir.

Jeff Wilhoit

Thank you, Gwen and welcome, everyone, to the Goldcorp 2007 first quarter earnings conference call. As a reminder, we will be discussing forward-looking information that involves unique risks concerning the business, operations, and financial performance and condition of Goldcorp. Forward-looking statements include but are not limited to statements with respect to future metal prices, the estimation of mineral reserves and resources, the timing and amount of estimated future production, costs of production, capital expenditures, costs and timing of the developments of new deposits, and permitting timelines.

Forward-looking statements are subject to known and unknown risks, uncertainties and other factors that may cause the actual results to be materially different from those expressed or implied by such forward-looking statements. Accordingly, you should not place undue reliance on forward-looking statements.

With that, I will now turn the call over to Kevin McArthur, President and Chief Executive Officer of Goldcorp. Kevin.

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Kevin McArthur

Thank you, Jeff and thanks, everyone, for joining us today. I’ll begin as usual with a brief recap of our first quarter results before reviewing operations and key development projects, and then as always, at the end I’ll open up things for your questions.

The first quarter of 2007 for Goldcorp was fairly typical of what we have come to expect from a seasonal perspective. The winter quarter tends to be a period of slower production due to weather-related issues, especially in our heap leach operations. Each quarter this year ramps up higher than the last. This is reflective of our growth profile and of course, the first gold pour is expected at our Los Filos mine in Mexico late in the second quarter. And in this context, we are very pleased with our performance in this first quarter.

It is interesting to point out that this past quarter was the first time in over a year that the company was not actively working towards closing a major transaction. Instead, we focused on mine operations, new mine construction, and we accelerated the process of looking inward at our very large land packages in order to determine how to maximize value from what our combined companies acquired at the lower end of the gold price cycle.

Following that review process, including visits to our most important assets, I can tell you that this company has never been stronger or better positioned for future success. We saw the seeds of that future success in our quarterly results. The increase in earnings cash flow and production are the direct result of our successful acquisition, exploration and mine building programs in past years.

The company’s margins are among the highest in the precious metals industry, which is attributable to our focus on building low-cost mines and our decision not to hedge gold production.

Net earnings increased to $125 million, or $0.18 per share, up from $92 million in the first quarter of 2006.

Cash flow from operations increased to $123 million, or $0.17 per share. This is up from $74 million last year. Operating cash flow before working capital changes also increased to $188 million, or $0.27 per share, compared with $141 million in the first quarter of last year.

Revenues nearly doubled to $506 million, from $286 million a year ago, which coincides with an increase in gold production to 558,000 ounces from 295,000 ounces in 2006.

I am pleased to say that cash costs were in line with our expectations for the first quarter and remain the lowest amongst our peer group at $181 per ounce. On a co-product basis, cash costs were $291 per ounce of gold production in the first quarter.

In view of the production ramp up that I mentioned, we are very comfortable with our guidance of $150 per ounce for the full year. This is on a by-product basis, of course. Once again, because of the smaller denominator, or lower production and unusually high YMAD royalties at Alumbrera in the first quarter, we expect our cash costs to decrease significantly over the next quarters. Also, remember we have now sold off some of our higher cost assets.

Speaking of which, our internal asset evaluation led us to the disposition of the Peak and Amapari Mines to Peak Gold Limited in the quarter. This places $300 million in cash and securities under our balance sheet and returns our focus to our core activities. If you exclude the production from these two mines, the company’s total cash costs for the quarter would have been $160 per ounce.

Early in the second quarter, we agreed to sell 25% of the silver production from the Peñasquito project to Silver Wheaton. This adds $485 million in cash to our balance sheet. This sets the stage for our new mine construction. This cash addition will move us from a net debt to a net cash position in the current quarter and we are in the process of consolidating our debt into a new credit facility designed to fund our capital projects, an we now feel very confident in our abilities to execute all of the components of our future growth programs.

Before reviewing operations, I’ll spend a moment going over a few more items that affected our results in the quarter. First, net earnings include a foreign exchange gain of $53 million on revaluation of future income tax liabilities; unrealized derivative losses of $9 million; and unrealized losses on our marketable securities of $2 million. When you adjust for these items, earnings in the first quarter adjusted of 2007 would be $83 million, or $0.12 per share.

Second, cash and cash equivalents at March 31, 2007 decreased to $404 million from $555 million in December 31, 2006. This is due to the repayment of $185 million in debt in the first quarter, capital expenditures of $140 million, and dividends paid during the quarter of $32 million.

Third, exploration expense remained steady at $8 million for the quarter, as ongoing drilling activities continue. Exploration activities are expected to total $120 million in 2007 with approximately half capitalized and half expensed. This is as the company continues to invest exploration dollars in and around the shadows of our head frames.

The fourth point I want to make affected results, the interest expense was $14 million for the quarter. As I said, the company repaid $185 million of debt since year end, with a total debt balance of $740 million as of today.

Our overall earnings of $125 million for the quarter were below our expectations. This is primarily due to lower-than-anticipated gold sales due to previously reported delays in commercial production at Los Filos, grade reconciliation and weather issues at Marigold, and the timing of the sales cut-off at Red Lake. In other words, we did not sell all of the gold we produced.

Secondly, as I mentioned before, we saw a very large net proceeds payment for the YMAD royalty at Alumbrera. Goldcorp's share of the YMAD payment recorded in the first quarter was $35 million. To put this into perspective, this first quarter payment translates into an increase in cash costs by $66 per ounce to Goldcorp's consolidated cash costs, and this number is expected to be much lower in succeeding quarters.

Now, turning to the company’s operations, at Red Lake, our people experienced their best quarter since combining the two mines. They produced 179,000 ounces of gold at a total cash cost of $228 per ounce. Production was higher due to primarily increased grade at 32 grams of gold per ton.

The sinking of the number three shaft reached its final depth of 1,924 meters in early January. Preparations to have the service cage operational by early May are progressing and the shaft expansion project is on track for completion in late 2007. The expansion to the mill will be completed by mid-2007, bringing the combined processing capacity of the mine to over 3,000 tons per day.

Exploration continues to focus on six key areas in Red Lake, including the High Grade zone, the Deep Campbell zone, the “Party Wall” area, the Upper Red Lake sulphides, the open pit potential, and regional exploration efforts.

Everything at Red Lake is moving forward at a good pace towards this mine’s expansion to 1 million ounces of gold per year in our five-year plan.

Turning to the two Canadian joint ventures, Porcupine and Musselwhite, we were pleased with the performance of both mines. Production has increased in comparison to the prior year. Gold production at Musselwhite for the first quarter was 36,200 ounces, a 9% increase over the corresponding quarter in 2006.

So far in 2007, the head grade through the mill has been 10% higher than in 2006. Cash costs per ounce of $458 were 10% higher in the quarter, incurred primarily by the underground operations as a result of higher mobile equipment and tire costs.

Last year, we moved to replace the aging mine fleet at Musselwhite and throughout this year, we will see delivery of this new equipment, which should reduce the equipment maintenance costs and result in significant productivity increases.

Positive exploration results continue to be returned from the PQ Deeps area, the north shore, and from a new target in a share zone/iron formation contact approximately 200 meters to the west of the PQ Deeps.

Gold production at Porcupine increased to 36,800 ounces for the quarter. This is up 17% quarter on quarter, due primarily to increased grade and recoveries from the underground operations. This is very good news as the mine was negatively impacted by lower-than-planned mill throughput. This is due to severe freeze-thaw cycle throughout the winter.

Cash costs at Porcupine are slightly lower than the prior first quarter at $419 per ounce.

Exploration drilling continues on the Hollinger project, with five surface diamond drills operating. We see Hollinger as an important new resource for Porcupine’s long-term future.

Luismin Mines in Mexico produced 45,900 ounces of gold and 1.9 million ounces of silver in the first quarter. At San Dimas, construction of a new filtering process for the tailings is in progress. We’ll be completing that in the second quarter of 2007. We are installing the new mill. It’s complete and going through its testing period, and also the Las Truchas power generation expansion project is on schedule at 38% completion.

Exploration at San Dimas has been successful in the central block area and exploration continued in the Nukay underground, also with very good results, proving the extension of several mineralized ore bodies over 200 meters below the current levels of development.

At El Sauzal in Mexico, production increased by 7% to 66,600 ounces of gold, due to higher grade. Cash costs are also lower at $94 per ounce. El Sauzal is Mexico’s largest gold mine and continues to provide impressive results.

In Guatemala, we are extremely pleased with Marlin’s operating results, in light of the start-up issues encountered last year. During the first quarter of 2007, the Marlin Mine produced 46,800 ounces of gold and 592,000 ounces of silver. Total cash costs came in at $144 per gold ounce.

Mill throughput in the first quarter of 2007 averaged 4,000 tons per day compared with 2,400 tons per day in the first quarter of 2006. This reflects the improvements made in the processing operations. As part of the ramp-up of underground mining to full capacity, ore mining increased to 66,000 tons in the first quarter. This compares with an average of 44,200 tons per quarter over the previous four quarters.

This mine is now hitting its stride, now milling 5,000 tons per day consistently and meeting its production targets.

In Argentina, Alumbrera gold and copper production for the quarter declined to 43,200 ounces of gold and 33 million pounds of copper. This is due to lower mill feed grades, this is in line with our expectations, and lower recoveries as a result of processing high gypsum content ore.

Total cash costs in the quarter were minus $299 per ounce net of by-product copper credits. This cash cost, while very low, was higher than in the past as a result of the decline in copper prices and a decline in the amount of copper sold. Also including the inclusion of the YMAD royalty. This $35 million royalty payment results from the large cash distribution from the mine, leading to a quarter one impact of $66 per ounce to Goldcorp's consolidated cash costs.

Unfortunately, we will on occasion see these YMAD royalty impacts leading to lumpy earnings results, but the overall performance of Alumbrera is expected to be good for the year.

Turning to Marigold, gold production decreased to 14,300 ounces compared with 27,200 ounces produced in the first quarter of 2006. Gold production was impacted by lower-than-expected grades, higher waste mining than expected, and part of this was a result because of a minor pit wall instability in the Basalt Pit which postponed the mining of a phase of this pit from early 2007 to 2008.

Cash costs were also higher than prior year due to lower ounce production and higher expensed stripping costs. Marigold certainly had a first tough quarter, but we expect improvements for the remainder of the year.

Overall, the mine operations are succeeding in containing costs and hitting most of our production targets, thus increasing the company’s margins in what we see as a rising metal price environment. Our new mines are designed to sustain these margins over a very long period of time.

So now, turning to those development projects, as previously disclosed, development of the Los Filos project was delayed for most of the quarter. Disputes with landowners were settled with a comprehensive agreement that included land rental adjustments and a complete package of social and sustainability development projects to be sponsored by the company.

With this behind us, we are back to work and we believe that we will pour the first gold at Los Filos by the very end of the second quarter. Los Filos will be one of four gold mines we operate in Mexico and with the exploration results we are seeing, we wanted to get things right in the beginning because Mexico is certainly our region of highest growth and we’ve got to get that right.

Turning to the Peñasquito project, all of the final permits required for full mine and mill construction and operation were received in the first quarter and production is now well underway -- sorry, construction is now well underway. This includes camp construction, site preparation for primary crusher, and installation of the 400 KVA electric line to the site. Mining and auxiliary equipment purchases were completed for the first phase of mining and have started arriving.

I was just there last week. I saw the first of two large loaders on site and the first of the 300 ton trucks are expected to arrive later in May.

A 600 meter decline has been started into the Peñasco outcrop in order to acquire bulk samples for metallurgical test work. So far in our follow-up since the feasibility, it appears that we’ve been conservative with our recovery rates and concentrate grade estimates. This work now is designed to fine-tune our production planning and to provide the bulk of concentrate samples for our marketing programs.

Production from oxide material is expected to begin in late 2008 while the flotation plant is scheduled to commence operations by late 2009.

Drilling continues at the project with very satisfactory results. We see a lot of future reserves upside at Peñasquito. We expect to provide a reserve and resource update in June. This reserves update will provide the basis for future optimization studies at Peñasquito.

At the Éléonore Project in Quebec, exploration drilling intensified over the winter season with six operating drill rigs. In parallel, the exploration team continued to carry out district surface mapping and delineation work to determine the strike length of the mineralization and assist in developing drill hole targets aimed at extending the lateral extent of the ore body.

In the second quarter, the first resource estimate will be issued and a pre-feasibility study will be initiated.

At the Pueblo Viejo Project, Barrick, the 60% owner and operator, continued to update the feasibility analysis. Advances during the first quarter included receipt of EIA approval for the mine site, facilities design modifications to improve silver recoveries, review of zinc production possibilities and a potential alternative for the location and construction of the power plant required for operations. The 2007 drilling program continues to find additional mineralization. We expect to see a revised feasibility study in 4Q and remain optimistic about our prospects to build a mine at Pueblo Viejo.

Goldcorp's key priorities for the balance of the year remain on maintaining our high margins through continued low cash costs; bringing the Los Filos project in production; ramping up mine construction at Peñasquito; continued development of the Éléonore Project; and maximizing our opportunities at our exploration and development properties, especially those that are in the Red Lake gold mine area.

Our balance sheet is poised and low cost growth is what we now deliver. Reflective of our growth plan, gold production is expected to increase as the year progresses, with a corresponding decrease in total cash costs. We will continue to apply our enhanced operational, exploration, and business strength to extract full value from our high quality assets.

Looking ahead, the company continues to expect production of about 2.5 million ounces of gold for the year at a total cash cost of approximately $150 per ounce.

With that, we will now open it up to the Q&A session, Operator, if you are ready with questions online.

Question-and-Answer Session

Operator

(Operator Instructions)

We’ll go first to John Bridges with JP Morgan.

John Bridges - JP Morgan

Good morning, Kevin. Congratulations. Alumbrera, you mentioned tire shortages. How big an issue do you think that’s going to be?

Kevin McArthur

I don’t have everyone in the room with me. They’re in the Vancouver office. I think the best person to turn that question over to would be Steve Reid, our Chief Operating Officer. Steve.

Steve P. Reid

John, I think the short answer is Xstrata is running the site. Generally, we know that there are tire issues globally and we are trying to deal with them. We will be working with Xstrata to make sure that it’s as minimal a problem as possible, but we are hoping it’s not a significant issue.

John Bridges - JP Morgan

I got the sense that tires were becoming less of a worry, so it’s a bit of a surprise to see this popping up again.

And then while I’ve got you, gypsum, how long do you think you are going to be involved with this impurity?

Steve P. Reid

We are going to get to the bottom of that. We have some people talking with Xstrata shortly on the very same issue, so sorry I can’t give you an answer on that one.

John Bridges - JP Morgan

Okay, let me try a financial angle on this one; the predictability of the YMAD royalties, if we see a nicely profitable year at Alumbrera, can we take a percentage of that and assume that’s going to come through in Q1 of the following year?

Kevin McArthur

If I can just handle that first off to say that in our analyst meeting in the first quarter, we covered that off for that first quarter payment, so that let’s call it lumpy earnings surprise should not have been a surprise.

In terms of the timing of payments, I would suggest that that’s a joint venture issue that is largely run by Xstrata, and of course we have a voice in that and so because we are not the primary company involved, it is very difficult for us to estimate exactly when those payments will be made.

I might ask if Lindsay Hall on the line has any other comment to that.

Lindsay Hall

John, at the analyst day, if you go to our website, we gave our attempt to give the analyst a chance to model this and if you just refer to that website, it gives you our anticipated cash dividends being paid over the year, plus the anticipated YMAD net proceeds payment that would be made over the year by quarter. I would just refer to that.

John Bridges - JP Morgan

Okay, I seem to remember that. Okay, thank you.

Operator

We’ll go next to Mark Smith with Dundee Securities.

Mark Smith - Dundee Securities Corporation

I have a few questions here. I just wonder if you could just give us a little bit more guidance on the G&A for the year, $26 million with $6.4 million of stock options in Q1. How does that look for the rest of the year?

Kevin McArthur

Once again, I will turn this one over to Lindsay.

Lindsay Hall

Mark, I would say that our run-rate that we see going forward for stock options on a quarterly basis is something like 8 a quarter now. We are still comfortable with our guidance of G&A of $60 million. We realize it was a little higher in the first quarter, much better than obviously the fourth quarter of ’06, but we are still comfortable a lot of that G&A, as you can well imagine, typical accounting fees and SOX fees. It’s not salaries and wages, so we think we can bring that into line and remain with our guidance of $60 million a year.

Mark Smith - Dundee Securities Corporation

Does that $60 million include the --

Lindsay Hall

It excludes the stock options.

Mark Smith - Dundee Securities Corporation

Okay. The next question then, can you just give us a better guidance or a better look at where we are looking for for total guidance and exploration costs for this year?

Kevin McArthur

Once again, we still expect to spend $120 million, Mark. That is of course half expensed and half capitalized. There’s nothing that leads me to believe that number will be any different by year-end.

Mark Smith - Dundee Securities Corporation

No, I meant the total CapEx budget now that you’ve got a higher budget in Los Filos and elsewhere.

Kevin McArthur

Boy, $750 million is our capital budget for the year. We have no reason to change that number.

Mark Smith - Dundee Securities Corporation

And that includes the $60 million for exploration?

Kevin McArthur

$60 million of the exploration is in that number, yes, you are correct.

Mark Smith - Dundee Securities Corporation

Okay, and was there any negative correction in Q1 on copper deliveries sent in Q4?

Kevin McArthur

How did that balance work out, Lindsay?

Lindsay Hall

Mark, when you say a negative, are you talking about what was the impact in the first quarter of ’07 for revaluation of the copper sales from primarily Alumbrera?

Mark Smith - Dundee Securities Corporation

That’s correct, yes.

Lindsay Hall

There was about $8 million pretax of pick-up in the first quarter of ’07.

Mark Smith - Dundee Securities Corporation

Okay, so that was a negative correction, yes?

Lindsay Hall

When you say negative, I would call it an income item to us in the first quarter of $8 million pretax.

Kevin McArthur

Positive, in other words.

Mark Smith - Dundee Securities Corporation

You have a positive correction. Okay. And then, in terms of the 22.5 million ounce revised guidance, does that include preproduction from Los Filos?

Lindsay Hall

I can take that, Kevin. Yes, it does include a small amount of preproduction from Los Filos.

Mark Smith - Dundee Securities Corporation

You basically have two quarters of preproduction if you are going into production in Q4.

Lindsay Hall

We think we are going to have our first gold pour in the second quarter of ’07.

Mark Smith - Dundee Securities Corporation

Yes, but your commercial production is Q4, so that’s two quarters of preproduction.

Lindsay Hall

Well, one if you want to --

Mark Smith - Dundee Securities Corporation

Okay, all right.

Kevin McArthur

I don’t know that it will be exactly four quarter when we hit commercial production. We may be able to hit commercial production in third quarter. We will see how that one goes. The start-up of a heap leach mine, you’ve always got to wonder how long it is going to take but typically I like to see it happen in the first quarter that production starts.

Mark Smith - Dundee Securities Corporation

Can you just give us a little feeling for which recoveries that we are going to see in operations? There were a couple of laggards in Q1, notably Marigold. I assume you are expecting an awful lot more in the latter part of the year from Red Lake in terms of throughput level. Can you just give us a little color on that since we don’t have individual guidance for operations?

Kevin McArthur

In terms of Marigold recoveries, we’ve had some slow recovery ore on the pad and that’s exacerbated by winter conditions, so that’s the answer to that one. I’ll just turn it over to Steve to talk about Red Lake.

Steve P. Reid

There’s nothing specific in terms of massive changes at Red Lake, although we had said all along we are expecting to get the plant expansion there. As you know, it’s a small expansion from 850 to 1250 on the Red Lake side, so there will be a small change there.

Just generally, a number of our operations were second half weighted. I think that was certainly something that we had said earlier in the year too.

Mark Smith - Dundee Securities Corporation

Okay, just back to Marigold though, as you’re in the basalt pit, I guess you are going to be in that for the rest of the year. Is that strip ratio that we are looking at in Q1, just a corrective phase and the equipment goes back to mining in the second through the fourth quarter?

Kevin McArthur

Steve, over to you again.

Steve P. Reid

Yes, that’s largely the case, Mark, and some of it’s come about, Kevin mentioned, localized stability. We just made a safety call there and decided to delay some of the lower material, which meant we would come back to the top and do the next stage of the strip.

Mark Smith - Dundee Securities Corporation

Okay. Thanks very much, guys. I’ll leave it for the next person.

Operator

We’ll go next to Tony Lesiak with UBS.

Tony Lesiak - UBS

Good morning. Kevin, can you talk to the timing again for the Pueblo Viejo study? Did you mention Q4 now?

Kevin McArthur

Well, certainly we have our goals in the joint venture to get that done as quickly as possible. In terms of our internal review, we are just saying broadly fourth quarter, which you can interpret that to mean very early in the fourth quarter. Chuck Jeannes is on the line. He’s had the most recent discussions. Chuck, do you have anymore light to shed on that?

Charles A. Jeannes

Well, just that the latest public statements by Barrick are that they expect a feasibility study to be completed in September, so we would expect to have that in our hands and get to work on construction approval immediately thereafter.

Tony Lesiak - UBS

Okay, so there’s just some modest slippage there. Was there a reason given for that?

Charles A. Jeannes

Well, yes. There’s a lot of things going on that’s Barrick’s doing, including continuing to have significant drilling success, which as you know can slow down your mine planning. And then the work continues as well on recovering the zinc in addition to the copper and silver that’s been added recently, so I know they’ve made it a very high priority and are moving forward as best they can.

Tony Lesiak - UBS

Do you know if that’s going to be considered in the new study, all the base metals and the silver?

Charles A. Jeannes

I’m assuming it is, yes.

Tony Lesiak - UBS

Just a production question on Alumbrera, where do you see second quarter production and should the inventory sales start coming through in the second quarter?

Kevin McArthur

I’m going to have to put that one over to Steve.

Steve P. Reid

Sorry, guys. I don’t have the stuff in front of me. Lindsay or someone there, do you have anything?

Lindsay Hall

We have something of an up-tick in the second quarter, gold sales and an up-tick on copper sales from Alumbrera in the second quarter as well.

Tony Lesiak - UBS

And the production levels?

Lindsay Hall

Production levels are up too, maybe -- I’ve got an up-tick of around 10%, 20% of production levels.

Tony Lesiak - UBS

Great. You mentioned the Peñasquito oxide project late 2008. I remember in the feasibility I think you had almost 90,000 gold equivalent ounces coming in ’08. Is that something you think is going to get revised lower?

Kevin McArthur

Certainly not revised lower, just late 2008 means second half. If anything, I would suggest that we are advancing the project if not faster at least as fast as we estimated in the feasibility, so we are very comfortable with our numbers.

When I said late 2008, that’s the same exact language I’ve used in the past, so don’t take that as anything negative. We are doing very well there.

Tony Lesiak - UBS

Okay, and then finally, just on the debt restructuring, you’ve indicated that you want to come up with a new structure here. Can you give us a bit of rationale for that and maybe talk to the costs for you to do that restructuring?

Kevin McArthur

On the rationale part of it, it just made sense to consolidate. Remember, we brought [Placer] and Goldcorp together here and their variety of instruments. We want to bring that into one package. We are aiming at something around $1.5 billion so that we have the liquidity that a company our size should have and the ability to write a check when we need to.

And that gives us the comfort level that we will be ready when it comes time to make a decision on Pueblo Viejo so that we can manage our balance sheet and have the ability to build all of our mines.

In terms of any of the costs or the economics of this, we haven’t disclosed anything. We certainly don’t have a signed deal. Perhaps if I turn to my friend again, Lindsay Hall. Lindsay, do you have anymore light to shed on that?

Lindsay Hall

No, it’s just as Goldcorp got very large, very quick, the existing facilities, debt facilities as you said, we have outstanding today are really just recognized the acquisition of Placer Dome, and as you can recall, we have transactions. If we have debt outstanding today, I just say net, not debt, but actually debt outstanding of $700 million and some today. As you know, we have cash inflows coming in fro the two financial transactions that we’ve announced of some $700 million, so in essence, we probably really do not have any need for the facility, but it’s a revolver. It will be about $1.5 billion and it just provides that liquidity that any company the size of Goldcorp likes to have. We don’t anticipate drawing on it too much, absent what we do with PV and Barrick.

As you know, the credit markets are very attractive to a company like Goldcorp, so the costs to restructure or to put in place a new revolve is quite insignificant, and the earnings are very attractive to us.

Tony Lesiak - UBS

Okay, then just maybe one follow-on here; what level do you think you might get your debt down to by year-end?

Lindsay Hall

We think that our cash flows, like I say, we have about $700 million, $800 million coming into the treasury as we speak, we have about $700 million of odd debt, so I’m starting from a point today of net debt and we have a strong cash flow, so depending on commodity prices, we probably don’t have any debt outstanding at year-end.

Tony Lesiak - UBS

So you are going to be repaying all of it early?

Lindsay Hall

Well, when I say -- all we are going to do is our financial transactions pay down our existing debt, we’ll have a revolve of $1.5 billion, and we may draw a small amount on it depending on commodity prices, but I don’t expect any significant amount of draw on the revolver once it’s in place when I get to year-end.

Tony Lesiak - UBS

Thanks very much.

Operator

We’ll go next to David Stein with Coremark Securities.

David Stein - Coremark Securities

Good morning. A couple of specific questions, first on Alumbrera; previously you talked about the potential for a moly circuit. Could you give us an update on that?

Kevin McArthur

The moly circuit, first of all let me tell you that it’s not huge amount of moly coming out of Alumbrera. This was one of the projects that was worked on at the mine as a let’s see what we can do to maximize our opportunities going forward and get good rates of return on income rental project. So this moly circuit, I don’t think it’s operational yet but it’s on the way. So this first year, it’s running -- it will not produce a lot of moly, but by next -- let’s call it a few years out, we’re producing close to 2 million pounds of moly per year. That’s our share of the production.

If I could ask if perhaps Steve knows. Steve, is that moly circuit close to operation now, do you know?

Steve P. Reid

I don’t have any of the specifics on Alumbrera on that, but as I say, 2 million pounds a year was our share and we are expecting that shortly.

Lindsay Hall

We expected to have some moly sales in the third and fourth quarter, but you are talking about a pretty small amount given the $550 million of revenues, and I’m talking about revenues that come out of Alumbrera, gross revenue, so -- but there is some revenue in our forecast in the third and fourth quarter.

David Stein - Coremark Securities

So it will be kind of a ramp-up situation over a period of time?

Kevin McArthur

Actually just a -- when you start up a moly circuit like that you are going to have a few little hiccups along the way and then by the end of the year, it’s really rolling and so it’s pretty much -- yes, a ramp-up in a very short period of time and then you are producing moly.

David Stein - Coremark Securities

Okay, because 2 million pounds is not that insignificant, so it could be $50 million or whatever, depending on the price. Then, the other question I had is on El Sauzal. You talk in the Q1 release about the heap leach project and I’m just wondering if you could give us some guidance on what percentage of production going forward is going to come from the heap leach versus the mill and just what a revised production scenario is going to be for that mine.

Kevin McArthur

I saw our guidance on that on the heap leach and I think there is way too much attention placed on that heap leach operation. It is going to be a very small part of our production going forward. It is something that we are analyzing right now what the optimum way to build that heap leach will be and we are even thinking as low as our costs are and as well as this mill runs, why don’t we take a really hard look at the end of the mine of life, just taking the low grade stock piles and feeding them through the mill. So there’s a little bit of a discussion going on right now internally with our technical people as to what the best thing is for this operation.

So far in our budgets, what we have are just the milling operation and we don’t have the heap leach ore in our production stream yet. We are selectively building a heap leach pad with the way we are placing the tailings, the dry stack tailings in our tailings disposal facility, so we will have the ability to build that heap leach at the end. But is it going to be a heap leach or are we just going to run the mill and feed the low grade through and at the end of the mine life?

I believe there is good opportunity for us to think about just running the mill, so we are stuck in no man’s land right now on that decision.

David Stein - Coremark Securities

Okay, so it’s -- we can just defer that indefinitely until we hear otherwise then?

Kevin McArthur

Yes, don’t in any extent, don’t get too carried away with the heap leach opportunity. I must add though, as we drill and we find more heap leach ore, you have to think hard about what the big picture is because if there is that much heap leach-able ore, we should be thinking of finding a flatter area down in the valley to build a big heap leach operation. Do we have enough yet -- it’s just all undecided. It all depends on our drilling progress this year.

David Stein - Coremark Securities

Great. Thank you.

Operator

We’ll go next to Steve Butler with Canaccord Adams.

Steve Butler - Canaccord Adams

Good afternoon. Just an elaboration, I guess, on the previous question. On El Sauzal, where you had a 4.64 head grade, Kevin and Steve, in the first quarter, how will the grades progressively move down? Is it going to be very end of mine life when we’ll see much lower grade stockpile processing or what have you? It will be abrupt at some point because your reserve grade is only 2.1 grams per ton.

Kevin McArthur

This all comes back to our reserves reconciliation that still is a bit of a mystery out there, but what we are finding is much higher grades but less of it and we are right in the center of the zone now, so we are certainly in the higher grades, and as we get deeper, it kind of tails off and we are going to have lower and lower grades.

The question is how do we operate the mine post the big high-grade areas? Do we go to a heap leach or do we continue to run the low-grade stockpiles through the plant?

I just don’t have the answers to that question right now, Steve. It is certainly reflected in our five-year plan, however. We just don’t have it disclosed mine by mine at this time.

The only thing I would ask is if, and it’s unfair because Steve is not entirely up to speed on the El Sauzal property yet, but Steve, do you have any further light we can shed on that?

Steve P. Reid

I think what I would say is that yes, we are operating to a slightly elevated cut-off in stockpiling low-grade material with the potential of heap leaching it, and as Kevin has alluded to, we are looking very carefully at the decision as to whether that’s the wisest decision or not, and we haven’t gotten to that point at this point. But there’s nothing imminent in terms of a dropping grade.

Steve Butler - Canaccord Adams

All right. Do you guys still remain confident in getting Marlin’s underground levels up to I believe it was 1,000 tons per day?

Kevin McArthur

Well, the last I heard we are hitting that 1,000 tons per day on a daily basis, and not only that but we are hitting our targets in terms of the development work. Really what was holding us up last year was we didn’t get the development work done in time and we ran into a shortage of equipment in order to make our numbers. We’ve change the management there. We’ve got an extremely good team that’s very experienced. We are training miners. We are getting all the things done. We’ve got the amount of equipment we need now and there’s a big focus on development so that we don’t get behind.

I think we’ve turned the corner there, so everything I hear is good.

Steve Butler - Canaccord Adams

Okay, and just two last questions, I guess for Lindsay. Just to clarify, G&A you said roughly you’d be happy with $60 million per year, is that correct?

Lindsay Hall

Yes, that’s correct.

Steve Butler - Canaccord Adams

Okay, and stock-based compensation seems high, but $8 million per quarter you said?

Lindsay Hall

That’s what I would use as a new run-rate. It was lower in the first quarter but it will increase.

Steve Butler - Canaccord Adams

Okay, and your effective tax rate was about 23% although you appear to be paying more taxes as you look on the cash flow statement, but your effective tax rate of 23%, do you have a number that you would guide us to using for earnings purposes for the balance of ’07, Lindsay?

Lindsay Hall

I would still use 35%, give or take a percent. If you look at our actual results in Q1, back out the foreign exchange gain of $50 million, that will get you back to the more normal effective tax rate of 34%, 35%.

Steve Butler - Canaccord Adams

Okay. Thanks very much, guys.

Operator

We’ll go next to Victor Flores with HSBC.

Victor Flores - HSBC

Thanks. Good afternoon. I was hoping you could give us a bit of sense at Red Lake as to how much ore is coming out of the old Red Lake section and how much is coming from Campbell. If you could comment on why the total tons milled came down and what is happening with costs, because they did come down relative to the December quarter, but you also were mining much higher grades.

Steve P. Reid

I’ll take that, Kevin. In terms of the overall tonnage from the two sites, there’s really not been a dramatic change at this point. I think as we alluded to previously, we have been taking more ore up the Campbell side on that site and we do have the Campbell mill full on numerous occasions, which it hasn’t been for many, many years.

But no, there’s no dramatic changes yet in terms of material running across each site. We do have the ability to do that but the real change that we are looking for comes with the commissioning of the new shaft.

Victor Flores - HSBC

And as far as the cost side of things?

Steve P. Reid

In terms of which, specifically?

Victor Flores - HSBC

Well, listen, costs came down a bit relative to the December quarter but I would gather that probably had to do, as much as anything, with the grades going up quite a bit relative to last quarter. I am just trying to get a sense for what unit costs are doing.

Steve P. Reid

I think what we are also starting to see, Victor, is these kinds of synergies and integration things starting to work for us. As I say, it truly is operating as one large operation right now, so this is what we expected to happen and we're happy with the way that’s unfolding.

Victor Flores - HSBC

Great, thanks. And then just sort of shifting topics, maybe it is a bit early to be asking this, but do you have any updates on exploration at Marlin?

Kevin McArthur

No, we have continued to explore at Marlin. We have been drilling over at the West Barrel and we like what we see there. We're also doing some drifting down on the west end of the Marlin mine now and that’s -- within the Marlin vein is our best area for expansion for the future. We have not started drilling over on Corral. We have permission now to drill some other properties in the area, but we are once again continuing to go very slow there. 99% of our focus on getting the mine up and running, getting the mechanical difficulties in the mill behind us, making sure that the underground is running right.

Lastly, of course, the big issue is making sure that we're doing all of the right things in the communities and that we're embraced in the communities. Until we are 100% comfortable with that, we are just going very slow on the exploration at Marlin and focusing on exploration in other areas.

So a long-winded answer there, Victor, but no real progress that we will be reporting soon.

Victor Flores - HSBC

That is fine, thanks, and then just finally one little housekeeping question; do you have a copper price forecast that you are using for this year so that we can back out what we think your co-product number will be for the rest of the year?

Kevin McArthur

We do have copper hedges on a lot of our production, and I believe that we're at $2.88 per pound, is that right Lindsay?

Lindsay Hall

Yes, maybe what you want more, Victor, is one, I‘d go back to the analyst meeting where we gave you some sensitivities on what would happen in different metal prices vis-à-vis our costs regarding copper. When we're modeling our forecasts, we're using around $3 for '07. As you know, picking up from what Kevin said, we have hedges in place at around $2.94 for '07 for half the production out of Peak -- not Peak so much anymore obviously, since we sold it, but Alumbrera and then in '08, we have it about 30% of the production hedged at about $2.80.

I would go back to the analyst day where we pointed out some sensitivities and what would happen to our costs.

Victor Flores - HSBC

But in general, you're using a price around $3 in your internal model?

Lindsay Hall

Yes.

Victor Flores - HSBC

Okay. That’s the number I was after. Thank you very much.

Operator

We’ll go next to Patrick Chidley with Barnard Jacobs Mellet.

Patrick Chidley - Barnard Jacobs Mellet

Good afternoon, everybody. Just a couple of quick questions; maybe you could explain the freeze/thaw effect that you're getting at Porcupine. I don't really -- I haven’t really followed that, so if you could give some detail on that and why that is affecting production.

Kevin McArthur

On to you, Steve.

Steve P. Reid

There's nothing particularly significant there. What we were doing this quarter was running from stockpiles particularly, and we had lots of frozen weather followed by thawing weather and it happened several times. We were experiencing difficulty getting stuff out of stockpiles when it is frozen and stuff going through various chutes, et cetera.

It was just a seasonal effect, which this year the guys said it seemed to be pretty tough. We obviously know winter is coming, so we try to schedule it in every year, but they had a particularly bad time of it this year.

Patrick Chidley - Barnard Jacobs Mellet

And then coming back to El Sauzal and that leach ore, when you said there are large quantities of leach ore available, that’s obviously not very significant then if you're talking about a very small project there.

Kevin McArthur

The original project was quite small and then as we kept drilling in the Trinity Zone, we were finding significant amounts of lower grade ore that would be marginal to put through the mill. You've got to know that the entire El Sauzal project, if it had flat area, would have been a heap leach mine anyway.

So we came up with a plan to build a big flat area and to do it geo-technically correct for the eventual construction of a heap leach. How significant was the original? Not very -- it was just going to add some ounces at marginally higher costs, but as we drill the Barrel Zone, we are finding more.

Patrick Chidley - Barnard Jacobs Mellet

For the Barrel zone or the Trinity zone?

Kevin McArthur

Sorry, the Trinity Zone -- got off on the wrong mine there. The Trinity Zone, we are finding more but it still will be economically challenged because there will be stripping ratio issues and topographical issues surrounding it, so we just don't know at this point how much of that ore will be economic. We are still drilling. This is something over the next year or so that we need to analyze what the optimum way is to tack this on at the end of the mine life. We do not have the answers at this point.

Patrick Chidley - Barnard Jacobs Mellet

But still, the potential though is still not very large, even though you are finding exploration success.

Kevin McArthur

If I were an analyst, I wouldn't be putting too much into my models at this point in time, right.

Patrick Chidley - Barnard Jacobs Mellet

And then what about -- you did settle on this Los Filos blockade issue. I was wondering how much that is going to cost the company and over what period.

Kevin McArthur

I think I better ask Steve to hit that one.

Steve P. Reid

The short answer to that is it cost us about an additional $5 million per year in very round numbers.

Kevin McArthur

This is a mine that produces 300,000 ounces of gold per year in the $250 per ounce range and -- but not only that, we are seeing significant exploration success in the Nukay Zone that leads us to believe -- once again, big arm waves here, but leaves us to believe that we will be looking to build a mill here one day not only for the Nukay underground operation but also then we can take the higher grades from the Los Filos pit and apply that to the mill.

A lot of work yet to be done on that, but we see that not only do we see an increase in the length of the mine life there, but also a possible throughput increase.

So like I said in the beginning, we wanted to make sure we got this done right and in terms of $5 million dollars per year, that is a significant amount of money but in view of the asset that we have and the upside that we are seeing, these are the things we had to get done in order to just now move forward in a very positive way.

Patrick Chidley - Barnard Jacobs Mellet

Last question on Cerro Blanco, when would you expect to get a go-ahead for that? Is it a go-ahead just for further exploration work or would it be a go-ahead for mine construction? Where does that sit?

Kevin McArthur

The go-ahead right now is to be able to go underground. That would be to drive a decline into the ore zones and do some test mining and understanding exactly what the ore body looks like, do some test milling so that when we go to build a mine, we've got it designed right.

I look at it as a project that’s an adjunct to the Marlin Mine, even though geographically it is not that close. It involves our central management group and we want to make small mistakes at Cerro Blanco along the way, until we decide to build a mine there, so we are a ways off yet.

One last point I want to add is that some of this permitting has been exacerbated by the concept of building a geothermal power plant there because there are certain water quality issues that you've got to deal with. We are doing a lot of testing not only for geothermal purposes, but also for environmental purposes of the aquifer and also for the dewatering of the mine at the deeper areas. We want to get that right, so it is a little ways off yet.

Operator

We’ll go next to Barry Cooper with CIBC World Markets.

Barry Cooper - CIBC World Markets

When I was reading the press release, I was coming to one conclusion and then Kevin, when you had your opening remarks I think I may be changing my opinion here, so I need a little bit of clarification on Marlin.

You indicated in the release that it was running at 4,000 tons a day in Q1 and then I read about all the things you were doing to tackle the recovery issue, and I said okay that makes sense from the standpoint that you are going after improving the recoveries before you worry about the volume, which makes sense to me. But then you indicated that you are at 5,000 tons a day, so my question would be have you resolved all of the recovery problems, or let’s say the lower recoveries that you were getting to your satisfaction and basically what we see is what we get going forward, and indeed what would those numbers be? Are they representative here in Q1 or what should we look for?

Kevin McArthur

In broad numbers, Barry, first of all, the mill is running at 5,000 tons a day by the end of the quarter, so we feel satisfied that mechanically, we’ve got those issues behind us. In terms of recovery, the gold recovery is great and we have no issue. We are hitting pretty much exactly what we though with the gold recoveries.

The silver recoveries are lagging. Our initial -- well, our feasibility numbers called for 80% recovery of the silver and on a daily basis, we are getting in the 60% range. Have we resolved that? We think so. Our first step was to do some oxygen injection in the tanks and while we found that improved the gold recovery, we did not see a substantial increase in the silver recovery.

Part of our capital program that was approved in last year’s budget was the addition of a couple of tanks for extending the residence time for the ore to enhance the silver recovery. We are moving forward with those plans. The tank construction is planned this year and so I think that the bottom line there is that in increasing residence time, we think that’s the ultimate solution to get us up towards that 80% recovery of the silver.

Once again, to reiterate, the gold recovery is fine.

Barry Cooper - CIBC World Markets

Okay, I just saw the gold was actually down a bit this quarter, the lowest it’s been in the last five, so I wasn’t sure that was any trend that we should be worried about.

Kevin McArthur

Okay, that’s all the questions I had. Thanks.

Operator

We’ll go next to Haytham Hodaly with Salman Partners.

Haytham Hodaly - Salman Partners

Good morning, or afternoon, I guess. A couple of quick questions, just most of my questions have been answered but just with regard to the terminology, you actually had about 180 cash costs, 181 cash costs for the quarter, and then later on you gave guidance of about $150 average cash cost. Are those comparable numbers? One says total cash costs, one says average cash cost. Just trying to make sure.

Kevin McArthur

Yes, they are the same. Sometimes we slip up. We kind of tend to want to shorten up our sentences, but yes, total cash costs and those are apples-to-apples.

Haytham Hodaly - Salman Partners

Okay, and let’s go over to El Sauzal. Any luck on exploration there and trying to bring back some of those ounces that were lost or reduced within the last six months?

Kevin McArthur

No results at this point to give you any joy, let me put it that way. We are still working but it is going to take time.

Haytham Hodaly - Salman Partners

Okay, perfect. That’s it. Thank you.

Operator

And this concludes the question-and-answer portion of the call. Mr. McArthur, you may proceed with your closing comments.

Kevin McArthur

Thanks very much. I appreciate everybody hanging in there for a rather long quarterly call. Just to go back on what everything that happened during the quarter, the only real negative for the quarter was Marigold’s production, which was obviously disappointing and we laid out some of the reasons why. Everything else otherwise is in line and our cash costs, although appearing high this quarter, when you normalize them for the YMAD payment and the selling of the two higher cost lines, are actually a very good -- and Haytham, sorry about not looking like it’s apples and apples but we do expect to hit our 150, so you can imagine what our next few quarters will look like. Those are the reasons we are confident about hitting those $150 numbers.

To conclude, once again to reiterate this whole thing, I’ve been saying I’ve been on the road an awful lot and I’m very impressed by our mines and our new projects and the outlook. Our balance sheet is now ready for our mine building stage and now we’ve really turned to focusing on delivery, and that’s getting Los Filos up and running, first pour of gold by very late in the second quarter, optimizing and constructing Peñasquito and that’s a big job, given the exploration results we are seeing and the new reserve that we expect to get out in June. Getting Éléonore to feasibility -- there’s a lot -- this is an advanced exploration project that wants to be a mine and we are working very hard to get that into feasibility. Drilling all of our properties, which is a big priority, and then delivering on our growth programs.

I continue to be impressed by the people of Goldcorp who are dedicated to getting this job done and following that, I would just say we’re looking forward to our next quarterly call. Thank you all for the attendance and have a good day. Thank you.

Operator

Thank you, everyone, that does conclude today’s conference. You may now disconnect.

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Source: Goldcorp Q1 2007 Earnings Call Transcript
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