Second-quarter earnings jumped 11% to US$17.8 million (US10 per share) on revenue of US$48.8 million, compared with earnings of US$15.2 million (US9 per share) on revenue of US$48.2 million in the corresponding period of 2002. The realized gold price during the recent quarter was US$352 per oz., or US$5 higher than the average spot price for the same period and US$39 higher than the realized price in last year’s second quarter.
Says CEO Robert McEwen: “It was a good quarter . . . and we’ve increased our forecast for the year in terms of production.”
Significantly, the company saw its profits rise even though it withheld 21,648 oz., or 14%, of its gold production from sale. Gold bullion holdings swelled by 10% to 245,224 oz. (7.6 tonnes). Goldcorp says it now has more gold than Mexico, and that it is closing in fast on Canada’s official gold reserve.
The company produced 149,354 oz. in the recent quarter at a cash cost of US$100 per oz. sold, little-changed from the 149,015 oz. produced at US$86 apiece a year earlier.
The flagship Red Lake mine produced 129,860 oz. gold at a cash cost of US$73 per oz., compared with 130,491 oz. at US$60 per oz. a year earlier.
The average ore grade at Red Lake was 2.47 oz. gold per ton (84.7 grams per tonne), compared with 2.45 oz. gold in the second quarter of 2002.
Chief Operating Officer Bruce Humphrey says undercut-and-fill mining is largely replacing conventional and mechanical cut-and-fill. Undercut-and-fill mining is carried out from the top down, as opposed to the more standard bottom-up approach. The method entails building an artificial roof support so that workers are not exposed to overhead weak ore and wall rock. After the cut has been completed, heavy caps or stulls are placed on the floor of the cleaned-out cut. Wire mesh and fabrene are installed on top of the stulls, and sandfill is poured in.
“We’re going through the early stages of that [conversion to undercut-and-fill],” says Humphrey, “and we expect it’s going to be an economical way to mine as we begin experimenting with different ground supports. There are a lot of advantages to it, including less dilution and certainly a lot less stress-induced mining. We are seeing a temporary increase in our mining costs with this method, but the advantages will offset that.”
He says the gold-bearing sulphide concentrates stockpiled at Red Lake contained about 68,000 oz. gold at the end of the second quarter. Soon, about 30,000 oz. of that amount will be moved to
“What we’re going to be shipping to the Campbell mine is what we intend to be producing on a daily basis,” says Humphrey, adding that, by the end of the year, Goldcorp should have about 40,000 oz. gold in its concentrate stockpile.
He says the offtake agreements with Barrick and Placer are both renewable.
The remainder of Goldcorp’s second-quarter production came from its Wharf heap-leach mine in South Dakota, which yielded 19,494 oz. gold at a cash cost of US$282 per oz. sold, up from the 18,524 oz. gold produced at a similar cost a year earlier.
However, lower recovery rates at Wharf are forcing the company to extend leaching times. The current forecast for 2003 is 71,000 oz. gold at a cash cost of $268 per oz.
For 2003, projected gold production at Red Lake has been increased by 20,000 oz., to 530,000 oz., owing to increased production from concentrates. This brings the company’s total production forecast for 2003 to 601,000 oz. at a cash production cost of US$100 per oz.
Meanwhile, a US$94-million expansion project at Red Lake is on schedule and on budget.
Cementation Skanska Canada is sinking a 4,000-ton-per-day production shaft to a depth of 7,150 ft. Excavation of the shaft collar is under way and concrete is being poured to build a foundation for the hoist installations. Goldcorp has already spent US$5 million on the expansion, and has budgeted US$36 million for capital expenditures this year. The headframe and hoist should be installed by early 2004.
By 2007, the company expects to be mining at Red Lake at an expanded rate of 700,000 oz. per year and at a production cost of US$70 per oz.
At a gold price of US$350 per oz. and a Canadian-to-U.S.-dollar exchange rate of 1.40, the expansion’s internal rate of return is pegged at 46% and the payback period, at 1.2 years.
Goldcorp remains debt-free. It ended the second quarter with liquid treasury assets of US$353 million, consisting of US$200 million in cash (mostly in Canadian funds), US$85 million in gold bullion, and US$68 million in marketable securities. The marketable securities consist mainly of junior gold-mining shares, such as
During the second quarter, the steep rise in the loonie relative to the greenback increased the company’s cash position by US$17.5 million.
“As we’ve nailed down our expansion plan at Red Lake and defined our capital cost, we can step out and look for opportunities to build production outside of Red Lake,” says McEwen. “We have a strong treasury, and there have been some opportunities in the market that have been not fully valued, and so we are looking to make some strategic investments.”
He adds: “About ninety per cent of what we’ve invested in [so far] is very liquid paper.”
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