Resource World Magazine

www.resourceworld.com 7 J U N E / J U L Y 2 0 1 6 the way I felt back in 2001 when we founded Wheaton River which turned into Goldcorp. I think that the gold price going forward is going to be very good for investors and very good for gold min- ing companies and extremely good for Goldcorp. The reason I believe that is that the main drivers of the gold price being jewlery, investment demand, and central banks are all providing positive price pres- sure through Asian demand for jewlery, zero interest rates, and net buying from central banks. "But, the most important component for the gold price going forward is on the supply side. I've been in this business now for nearly 35 years and during that time the amount of gold coming out of mines has gone up every single year. Mine sup- ply of gold is leveling off and may start to tip down maybe this year or next but certainly no later than three years. As an industry we've never experienced that before. No one knows exactly how the market will react or what the impact on the price will be. "With the nature of our business and the long lead times from discoveries, permitting, construction and eventually to operation, even with a dramatically higher gold price it will take a long time before mine supply would ever start to turn back up. So I think we have a long period of declining mine supply which will have a very significant impact on the price of gold." Despite forecasted declining industry gold production, Goldcorp plans to main- tain future gold production at 3 million ounces per year by utilizing their young robust portfolio of projects which they will internally finance to put into production. A good example of this is Goldcorp's two newest mines, Éléonore and Cerro Negro. They both added to the strong performance across Goldcorp's portfolio of producing assets which led the company to deliver solid operational and financial results in Q1 2016. Gold production came in at 783,700 gold ounces with AISC (All-In-Sustaining- Costs) of US $836/oz. The gold miner re-confirmed full year production and cost guidance of 2.8-3.1 million ounces at AISC of US $850-$925/oz. The company turned a profit with US $80 million or US $0.10/share in Q1 2016 which was a strong improvement com- pared to Q1 2015 which saw a net loss of US $87 million. Although the company generated negative free cash flow (FCF) of $101 million in Q1 2016, the gold producer is expecting to be substantially free cash flow positive over the full year in 2016. At US $1,200/oz gold, the company stated it is expecting to generate over US $400 million in free cash flow in 2016 and every US $100 increase in the gold price would add approximately US $290 million in FCF to the company's coffer. The cash return from Goldcorp's portfolio of low cost mines is expected to be used to repay debt maturities of US $200 million due in 2016 and a further US $500 million due in 2018. At current gold prices, the company com- mented, it will have more than sufficient cash flow to fund debt repayments, invest in existing organic growth projects, and continue to pay the its current sustainable dividend to shareholders. This will only further improve the competitive advantage Goldcorp enjoys in the gold sector. There are several economic studies underway on development stage assets in their project pipeline. The progres- sion of these projects will play an integral role in Goldcorp's objective to drive effi- ciency and productivity improvements. Management have engaged in a two-year program to deliver sustainable efficien- cies of $250 million per annum through maximizing returns from large capital investments completed in fiscal 2015. A major corporate strategy being implemented by Garofalo in 2016 is the decentralization of the organization. This will drive ownership and accountability down to the individual mine sites in order to grow the net asset value of the business. Through this approach, in Q1 2016, the company eliminated 750 positions in the Canadian business and announced closures of its offices in Reno, Nevada and Durango, Mexico. As Latin American mines repre- sent approximately two-thirds of the total workforce, there will be a strong focus to reduce costs and improve efficiencies at those mine sites going forward. In the com- ing two years, the company will realign operations from the major construction of mine sites to harvesting a return from their mines, driving down input costs, and further decentralizing responsibility to the individual mine sites. Automation has been a major theme in mining this year and Goldcorp is heav- ily focused on this cost-reducing practice which integrates well with its new under- ground mines, Éléonore and Cerro Negro. The gold miner is testing semi-automated and fully-automated mining fleets, which will be integrated in the coming years to benefit from this innovative technol- ogy. This type of innovation is viewed as a significant value-add proposition by way of operational and productivity enhancements. In Q2 Goldcorp will experience planned lower mining grade sequences in most mines, a 10-day shut down for preventa- tive maintenance at Penasquito, and over "Mine supply is coming down in a significant fashion. Goldcorp performed a recent analysis by reviewing the press releases of the top 10 gold producers and over the next three years they are forecasting, with their own portfolios, an 8% decline in gold supply." — David Garofalo

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