Debt-free and a long-time true believer in a nascent bull market for gold, Goldcorp began holding back some production from its Red Lake mine in Ontario in the third quarter of 2001, when spot gold was trading at US$274 per oz.
Just over two years later, at the end of the current third quarter, this held-back production amounted to 142,913 oz. gold, or 11% of the company’s total production over this period.
As well, in 2002 and 2003, the company periodically bought gold on the open market, adding 123,817 oz. and bringing the total hoard to 266,730 oz., or 8.3 tonnes — a sum exceeding the Bank of Canada’s holdings by more than 30%, the company cheekily notes.
The entire hoard has now been sold at an average price of US$388 per oz., or US$103.5 million in total. The selling price was US$72 per oz. more than the average gold price of US$316 that would have been realized if all gold had been sold at the time of production, and US$66 per oz. more than the average price at which the other gold was purchased.
The sale has contributed a fourth-quarter pretax income of US$40 million, or US22 per share, which, on an after-tax basis, amounts to US13 per share.
As a result of the windfall, Goldcorp has declared a special dividend of US10 per share, payable on Jan. 13, 2004, to shareholders of record on Jan. 6. That is in addition to the company’s now-monthly dividend of US1.5 per share (US18 per share annually).
With the gold-hoard profit now crystallized, Goldcorp is forecasting record earnings for 2003.
Going forward, the company says it will resume holding back roughly 10% of its gold production from sale.
At the end of September, Goldcorp had no debt and US$331 million in working capital, consisting of cash and equivalents, shares in other gold companies, and the bullion hoard.
On Dec. 10, the day of the gold-sale announcement, Goldcorp shares suffered a severe bout of profit-taking, along with all the other gold producers, dropping $1.29, or 5.8%, to $21 in Toronto, and US93, to US$16.08, on the Big Board. The shares recovered within two days.
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