Goldcorp: Uniquely Positioned to Benefit from a High Gold Price

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Includes: BHP, GG, WPM
by: Global112

Goldcorp (NYSE:GG)– 3rd quarter review

Stats:

Gold production increased to 556,200 oz. from 431,800 oz. a year ago.

Cash costs of $140 oz., net of by-product credits.

Cash and Cash Equivalents of $599.6 million.

Selected property review:

Red Lake, Canada (100% ownership)

Production of 163,400 oz. at cash costs of $271 oz. with and average realized price of $684 oz. Revenues of $118 million and earnings from operations of $44.6 million were recorded during the 3rd quarter. Proven and Probable reserves of 5.2 million oz. of gold with the possibility of a 3rd mine at the 'party wall' area. Red Lake has been in operation for more than 50 years and is the world's highest grade gold mine.

Musselwhite, Canada (68% currently)

Production of 39,800 oz. at cash costs of $490 oz. with and average realized price of $677 oz. Revenues of $27.4 million and earnings from operations of $2.8 million were recorded during the 3rd quarter.

Porcupine, Canada (51% currently)

Production of 36,800 oz. at cash costs of $483 oz. with and average realized price of $680 oz. Revenues of $25.5 million and earnings from operations of $300,000 were recorded during the 3rd quarter.

Luismin, Mexico (100%)

Production of 44,400 oz. of gold at cash costs of $255 oz. with and average realized price of $683 oz. 1,865,600 oz of silver were produced with a selling price of $3.90 due to an agreement with affiliated entity, Silver Wheaton (SLW). Revenues of $36.8 million and earnings from operations of $5 million were recorded during the 3rd quarter.

El Sauzal, Mexico (100%)

Production of 77,600 oz. of gold at cash costs of $117 oz. with and average realized price of $683 oz. Revenues of $56 million and earnings from operations of $17.1 million were recorded during the 3rd quarter.

Alumbrera, Mexico (37.5%)

Production of 66,000 oz. of gold at cash costs of $-1,057 oz. with and average realized price of $704 oz. 40,800 oz of silver were produced with a selling price of $3.82 lb. Revenues of $151 million and earnings from operations of $69.2 million were recorded during the 3rd quarter.

Selected project development:

Los Filos, Mexico (100%) – 4.44 million ounces of gold with 670,000 oz. proven and 3.77 million ounces probable. Production ramp up is nearly complete with 3rd quarter gold sales of 13,100 oz. whose proceeds are being used to offset construction costs. Expected production of 300,000 oz. @ $250 /oz. upon completion of ramp up.

Penasquito, Mexico –Proven and probable reserves of 13 million oz. of gold and 864 million oz of silver. Construction is underway with initial production in 2008. The latest feasibility study estimates annual production of gold at 387,500 oz. at a cost of $125 oz., 22,800,000 oz. of silver at a cost of $4.91 /oz., and 137,000 tonnes of zinc at $0.44 /lb.

Eleonore, Canada – Initial estimate of 2.76 million oz. of gold with mineralization open below 1,200 meters. A pre-feasibility study has been initiated with production estimated to begin by 2010.

Hedged contracts:

Copper – 16.5 million lbs. @ $2.91 /lb for 2007 and 30 million lbs. @ $2.55 /lb.

Zero cost collar structure

Puts were purchased at $3.18 and calls sold @ $3.38 on 2.3 million lbs. of 2007 copper production.

For 2008, puts were purchased at $3.26 and calls sold at $3.65 on 21.2 million lbs. of copper.

Related party transactions:

Goldcorp owns 49% of Silver Wheaton.

For the 9 months of 2007, Silver Wheaton purchased 5.2 million oz. of silver at $3.9 /oz.
On July 24, 2007 Silver Wheaton acquired 25% of the silver production from Penasquito for the life of the mine for $485 million.

The strengthening Canadian dollar is hurting cash costs. However, Goldcorp is uniquely positioned to benefit from a high gold price as production is started at new mines and ramped up at existing mines. Goldcorp's projects are all located in safe locales with minimal risk. A strong balance sheet and steady cash flow mean that new mines can be furnished outside of existing cash flow rather than tapping the capital markets.

Another interesting play on Goldcorp is its low gearing, which makes the company an attractive acquisition target by larger, diversified mining companies wanting more gold exposure. BHP Billiton (NYSE:BHP)'s bid for Rio indirectly puts gold companies on the radar screen and Goldcorp is entering a mid-tier producing area which has become devoid of competition due to mergers and acquisitions.

Disclosure: Communications are intended solely for informational purposes. Statements made should not be construed as an endorsement, either expressed or implied.

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