GG: Merrill
Mr. McEwen stated that Goldcorp has a simple, powerful story. Its Red Lake mine is a lowcost ($100/oz), very profitable producer (34% for 6M03) and is unhedged. The company has a very strong balance sheet, with $353 million in liquid assets at June 30, 2003, including $200 million in cash, $85 million in gold bullion and $68 million in marketable securities, and no debt.
The goals of Goldcorp are to become a one-million-ounce gold producer, maintain $100/oz cash cost, remain unhedged, no debt, increase dividends and reserves. The company is spending $94 million to expand its Red Lake mine through the development of a 7,150-foot shaft and expanding the production rate from 650 to 1,000 tpd. Gold output from Red Lake is forecast to increase from 500,000 ozs to over 700,000 ozs by 2007.
Goldcorp is carrying out an aggressive exploration program in the Red Lake camp, both on the Red Lake mine ground and the surrounding region. The company is also perusing the acquisition market for opportunities but finds it must be disciplined, as valuations are not inexpensive.
What’s New - The company released further drill results from its Red Lake mine yesterday. The results returned the deepest High Grade Zone (HGZ) multi-ounce intersection of gold yet, which was 2.11 oz/ton gold over 48 feet at a depth of 7,165 feet. This discovery of multiple zones of multi-ounce, high-grade mineralization at depth indicates the gold content is increasing at depth, rather than decreasing as previous results had suggested. Goldcorp stated it is possible to increase the reserve and resource base at HGZ.
We will be reviewing our NAV model post the Denver Gold Show.
Recommendation At the current price, Goldcorp is trading just above 3 times estimated NAV. Historically gold shares have traded between 1 and 3 times asset value. We maintain our Neutral rating.
