Goldcorp consolidates position in Red Lake
“This transaction secures for Goldcorp full control of eight kilometres of strike length in the heart of the world’s richest high grade gold district,” said Kevin McArthur, Goldcorp’s President and Chief Executive Officer. “Nearly 200 drill holes have defined an impressive gold deposit at Bruce Channel, with potential for additional expansion over time. Development of this strategically important zone can now move forward with our adjoining assets as a single, comprehensive project, sharing mine infrastructure, ore processing facilities and human talent with Red Lake, thus minimizing capital and operating costs and maximizing long-term shareholder value.”
The total consideration for 100 per cent of the fully diluted shares of Gold Eagle would be approximately $1.5 billion.
The combination has been approved by the boards of directors of Goldcorp and Gold Eagle and will be subject, among other things, to the favourable vote of 66.6 per cent of the Gold Eagle common shares voted at a special meeting of shareholders called to approve the transaction.
Earnings
Goldcorp also announced adjusted net earnings of $83.2 million and gold production of 551,600 ounces for the quarter ending June 30, 2008.
“We are pleased to have met our cash cost expectations of $275 per ounce in the first half of the year despite industry-wide cost pressures,” said McArthur. “Our low-cost portfolio of mines provided strong cash flow growth in the first six months amid a continued high gold price environment.
“However, gold production was approximately 10 per cent lower than expected, and some of the factors causing the shortfall have continued into the third quarter. While we expect improvements in the second half, the delayed gold production, industry-wide cost pressures and a previously reported shortfall in ounces at our Canadian mines have led to a revision of guidance for 2008.”
Following a first quarter mine sequencing issue that led to lower than expected gold production at Red Lake, the mine finished the second quarter with solid results. Development of ore loading facilities at the new Number 3 shaft continues to progress toward the designed 6,000 tonnes per day hoisting capacity, expected by the end of 2008.
Coupled with important underground infrastructure development, Red Lake will be well-positioned for increased production and lower mining costs in 2009. However, production is not expected to meet original 2008 projections, warned the company.
Goldcorp said it expects continued cost pressures, combined with a revised gold production outlook, to result in higher than previously projected total cash costs for the year. Production guidance for 2008 has been revised to 2.3 million to 2.4 million ounces of gold at a total cash cost of less than $300 per ounce.
Gold price
A realized gold price of $897 per ounce led to a 19 per cent increase in revenues in the second quarter, to $631.7 million, compared to $528.8 million in the second quarter of 2007. Gold sales for the quarter increased to 556,200 ounces at a total cash cost of $308 per ounce, compared with 536,900 ounces at a total cash cost of $166 per ounce in 2007.
Net earnings in the first six months of 2008 were $220.3 million or $0.31 per share, compared to net earnings of $108.5 million, or $0.15 per share, in 2007. Adjusted net earnings totalled $247.9 million, or $0.35 per share, compared to $178.1 million, or $0.25 per share, in 2007. Adjusted net earnings primarily exclude the effect of a non-cash foreign exchange loss on revaluation of future income tax liabilities, the first quarter gain on the sale of the Silver Wheaton shares, and an unrealized non-hedge copper derivative loss.
Drilling continues to provide positive results in the Party Wall between the former Campbell and Red Lake mines in northwestern Ontario. Opportunities to accelerate production from this area are under investigation. In addition to the Party Wall, high grade gold assays in the Deep Campbell and Red Lake zones indicate that deeper portions of the mine will continue to be productive for several years.
The new Number 3 shaft is capable of hoisting 6,000 tons per day, eliminating production bottlenecks that will facilitate increased mining efforts on the lower grade footwall complex.
Drilling continues to define a potential open pit resource above the old underground workings. Planning for this opportunity and others in the district will lead to design and feasibility studies for a large new mill.
Subject to completion of the Gold Eagle acquisition, an accelerated development schedule for the Cochenour and Bruce Channel deposits will take advantage of synergies within the Red Lake camp.
Musselwhite
Drilling at Musselwhite Mine, north of Thunder Bay, continued to provide evidence for a new geologic paradigm that could result in significant resource growth. Gold discoveries in the Pre-Cambrian banded iron formation have extended known mineralization 2.3 kilometres along strike as well as laterally in the Moose and Thunderwolves zones. The company’s objective is to continue with exploration programs throughout this year and to commence scoping of an enhanced operation in 2009.
At the Hollinger project in Timmins, the company has identified high potential underground targets at both ends of the Hollinger - McIntyre trend. Additional exploration drilling will be focused on these areas, while permitting will begin on an open pit development located within the historic Hollinger area. Mining operations ceased in this area in 1968.
Goldcorp is the lowest-cost and fastest growing multi-million ounce gold producer with operations throughout the Americas. Its gold production remains 100 per cent unhedged.
