Term loan to finance Red Lake expansion (January 11, 1999)

Three banks have entered an agreement to provide US$60 million to Goldcorp (G-T) for the expansion of its Red Lake mine in northwestern Ontario.The loan, to be provided by the Bank of Montreal, the Bank of Nova Scotia and the Royal Bank, matures at the end of 2003, and funds drawn down will bear interest at the London Inter-Bank Offer Rate (LIBOR, currently 5%) plus 2.5%. The rate falls to LIBOR plus 2.25% once development is complete, and, subject to Goldcorp’s financial state, can fall further, to LIBOR plus 1.25%.The agreement compels Goldcorp to hedge a minimum of 450,000 oz. of production from its Wharf mine in South Dakota over the next five years. At the current year’s production rate of 117,500 oz., that represents about 75% of the gold Wharf will produce during the term of the loan. A floating charge on the company’s assets will secure the loan until development is finished.Drilling at the Red Lake mine, starting in 1995, has outlined a substantial new reserve, with 1.26 million tonnes grading 46.6 grams gold per tonne. Recent infill drilling has largely confirmed the reserve estimates and a revised calculation is expected in the early part of this year (T.N.M., Dec. 28/98).These new high-grade reserves are expected to send unit production costs down to about US$90 per oz. The mine’s cash production cost in 1996, before a strike shut it down, was US$359. The 30-month strike is still on, apparently with little prospect of a settlement.Consulting firm Watts Griffis & McOuat provided a feasibility study in September that estimated capital costs for the mine expansion at US$56.2 million (T.N.M., Oct. 12/98). Most of that cost was to go into underground development, including ore and waste raises and an internal ramp. The study also recommended expanding and upgrading the Red Lake mill.The feasibility study predicted a cash operating cost of US$88 per oz., assuming the Canadian dollar averaged US69 cents. The project’s internal rate of return was 49% at a gold price of US$300, and payback time was 17 months.Goldcorp has already engaged Merit Consultants as the construction manager and has received tenders for mill, underground and surface construction work.