Grade is still king at Goldcorp

Low-cost production from the Red Lake mine in northwestern Ontario gave Goldcorp (G-T) earnings of US$65.6 million (US37 per share) on revenues of US$185.2 million in 2002.

The year-end results represented big gains over the previous year’s US$52.8 million in profits and US$170.3 million in revenues, the product of higher gold prices and gains on the sale of securities in the year just ended.

Red Lake produced 525,930 oz. gold at a cash cost of US$65 per oz. during the year, mining an average grade of 78.5 grams gold per tonne. Production was up 4% over last year, but costs increased by US$6 per oz. Goldcorp’s other gold mine, Wharf, in South Dakota, produced just under 82,000 oz. at US$250 per oz.

Operating success at Red Lake has also prompted Goldcorp to approve a US$85-million expansion program at the mine. The centrepiece of the expansion is a new 2,180-metre shaft from surface, with a hoisting capacity of 3,600 tonnes per day. A mill expansion, which will take up about US$3 million of the budget, will bring processing capacity to 900 tonnes per day.

The expansion program rides on the back of a substantial increase in reserves, which support a production rate of 900 tonnes per day. (Red Lake currently hoists and mills about 590 tonnes daily.) The increase in capacity would bring the mine’s annual gold production to around 740,000 oz. About four-fifths of the ore would come from the mine’s High Grade Zone, and the rest from lower-grade sulphide material.

Based on a gold price of US$325 per oz. and a Canadian dollar at US64.5, the project would have an internal rate of return of 47% and an undiscounted cash flow of US$832 million. It would pay back in just over a year.

Reserve and resource drilling at Red Lake during 2002 replaced annual production and added a further 650,000 oz. to the mine’s mineral inventory. Reserves in the High Grade Zone now stand at 1.8 million tonnes grading 80.5 grams gold per tonne, and reserves in the Sulphide Zones total 1.4 million tonnes grading 12.1 grams. Additional resources of both ore types total 1.9 million tonnes grading 28.8 grams gold per tonne, mainly below 1,975 metres depth.

The new shaft, designated No. 3 (No. 2 is an internal winze), would provide access to mineralized zones below the existing 37 Level of the mine, about 1,650 metres below surface. Most of the recently discovered mineralization is in deep zones of the deposit.