gold mining: delivering on the sector’s potential in 2013' by chuck jeannes, goldcorp at...
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Presented at:
www.minesandmoney.com/hongkong
MARCH 21, 2013Mines & Money Hong Kong
STRATEGY.DISCIPLINE.EXECUTION.
AGENDA
Gold price – is the bull market over?
Gold equities – why the underperformance?
Goldcorp – how are we changing the paradigm?
G O L D , T H E G O L D S E C T O R A N D GOLDCORP
3
FORWARD LOOKING STATEMENTS
This presentation contains “forward-looking statements”, within the meaning of the United States Private Securities Litigation Reform Act of 1995 and applicable Canadian securities legislation, concerning the business, operations and financial performance and condition of Goldcorp Inc. (“Goldcorp”). Forward-looking statements include, but are not limited to, statements with respect to the future price of gold, silver, copper, lead and zinc, the estimation of mineral reserves and resources, the realization of mineral reserve estimates, the timing and amount of estimated future production, costs of production, capital expenditures, costs and timing of the development of new deposits, success of exploration activities, permitting time lines, hedging practices, currency exchange rate fluctuations, requirements for additional capital, government regulation of mining operations, environmental risks, unanticipated reclamation expenses, timing and possible outcome of pending litigation, title disputes or claims and limitations on insurance coverage. Generally, these forward-looking statements can be identified by the use of forward-looking terminology such as “plans”, “expects” or “does not expect”, “is expected”, “budget”, “scheduled”, “estimates”, “forecasts”, “intends”, “anticipates” or “does not anticipate”, “believes” or variations of such words and phrases or statements that certain actions, events or results “may”, “could”, “would”, “might” or “will be taken”, “occur” or “be achieved”. Forward-looking statements are subject to known and unknown risks, uncertainties and other factors that may cause the actual results, level of activity, performance or achievements of Goldcorp to be materially different from those expressed or implied by such forward-looking statements, including but not limited to: risks related to the integration of acquisitions; risks related to international operations; risks related to joint venture operations; actual results of current exploration activities; actual results of current reclamation activities; conclusions of economic evaluations; changes in project parameters as plans continue to be refined; future prices of gold, silver, copper, lead and zinc; possible variations in ore reserves, grade or recovery rates; failure of plant, equipment or processes to operate as anticipated; accidents, labour disputes; delays in obtaining governmental approvals or financing or in the completion of development or construction activities and other risks of the mining industry, as well as those factors discussed in the section entitled “Description of the Business – Risk Factors” in Goldcorp’s annual information form for the year ended December 31, 2012 available at www.sedar.com. Although Goldcorp has attempted to identify important factors that could cause actual results to differ materially from those contained in forward-looking statements, there may be other factors that cause results not to be as anticipated, estimated or intended. There can be no assurance that such statements will prove to be accurate, as actual results and future events could differ materially from those anticipated in such statements. Accordingly, readers should not place undue reliance on forward-looking statements. Goldcorp does not undertake to update any forward-looking statements that are included in this document, except in accordance with applicable securities laws.
All amounts are in U.S. dollars, unless otherwise stated.
4
GOLD PRICE – WHAT’S NEXT?
WHY GOLD?
6
516%
Central bank buying
Flat mine supply
Stable investment
demand
Safe haven/asset class Inflation
hedge
Currency protection
Growing physical demand
China factor
Continued debasement of international
currencies
increase over 2000
Dec. 31, 2000 – Dec. 31, 2012
12 Consecutive Years of Gold Price Growth
2000 2012
THREE FACTORS HAVE THE GREATEST IMPACT ON PRICE
7
Private Investment Demand is the Determining Factor
Private investmentPhysical demand has grown steadily, especially in emerging markets
Shorter term speculative demand is quite volatile and sensitive to:Real interest ratesMarket uncertainty or volatilityInflation expectations
Central banksCentral banks in developing countries have been increasing gold reserves
JewelleryJewellery demand in tonnage terms has decreased over the past decade but continues to increase in dollar terms due to emerging market demand
8 Source: World Gold Council.
CENTRAL BANKSWith Increases in Gold Price, Growth in Money Supply - Reserves Are Still Low
1970
1971
1972
1973
1974
1975
1976
1977
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1979
1980
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1989
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1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
28,000
30,000
32,000
34,000
36,000
38,000World Offical Gold Reserves
Tonn
es
GOLD & SILVER RETURNS - US REAL INTEREST RATESLow Real Interest Rates Correlate to High Gold & Silver Prices
Source: Deutsche Bank, Bloomberg.
Gold & Silver Returns in Different US Real Interest Rate Environments
9
HIGHER INFLATION …. WHEN?Expansion of Money Supply will eventually have Consequences
In 2013 – QE continues, with the US Federal Reserve openly committed to open-ended bond purchases through 2015
No end in sight until the Fed sees “substantial improvement in the outlook for the labour market”
The benchmarking of QE to employment seen by many as “uncontrolled” expansion of money supply
10
YOU CAN’T PRINT MORE GOLD...
11
Strong Correlation between Growing Money Supply and Higher Gold Price
Source: Bloomberg data Jan. 12, 2012 – Mar. 4, 2013
1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012500
1,000
1,500
2,000
2,500
3,000
0
200
400
600
800
1,000
1,200
1,400
1,600
1,800
2,000M1 Gold
US
M1
Mon
ey S
uppl
y ($
Billi
ons)
Gol
d Pr
ice
(US$
/oz)
US FEDERAL DEBT AND GOLD PRICEUS Debt Levels will Continue to Grow
Source: U.S Office of Mgmt & Budget, Bloomberg, BMO CM
Massive Debt Burden Supports Gold Long Term
12
FROM 2012 TO 2013
13
$ pe
r oun
ce
Source: Bloomberg data Jan. 12, 2012 – Mar. 12, 2013
Key Drivers of Gold Price Volatility in 2012:
Fed quantitative easing
Economic uncertainty in Europe
Another Year of Volatile Gold Price Performance?
Jan-12 Mar-12 May-12 Jul-12 Sep-12 Nov-12 Jan-13 Mar-131,400
1,450
1,500
1,550
1,600
1,650
1,700
1,750
1,800
1,850
GOLD STOCKS – WHY THE UNDERPERFORMANCE?
15
The graph below highlights the multiple contraction of senior gold producers over recent years (as P/NAV
Source: Canaccord Genuity.
DECLINING VALUATIONS OF GOLD COMPANIESSenior/Intermediate Historical Price to Net Asset Value Multiple
$300
$500
$700
$900
$1,100
$1,300
$1,500
$1,700
$1,900
0.50
0.70
0.90
1.10
1.30
1.50
1.70
1.90
2.10
Spot
Gol
d (U
S$/O
z)
P/N
AV
Mul
tiple
(5%
/Spo
t)
Spot Gold US$/Oz
Sr./Int. P/NAV Multiple
P/NAV Avg. - 1 STDEV
GOLD STOCKS HAVE UNDERPERFORMED GOLD
16
Gold Price +358%
Peers*+75%Philadelphia Gold / Silver Index+75%
Goldcorp+161%
Dow Industrials +68%
* Peers include: Barrick, Newmont, Kinross and Agnico Source: Bloomberg data Jan. 1, 2003 – Mar. 12, 2013
Positive Absolute Returns but Lagging Gold Price Performance
2003 2005 2007 2009 2011 2013-30%
70%
170%
270%
370%
470%
REASONS FOR GOLD STOCK UNDERPERFORMANCE
17
All of the Factors can be Positively Addressed
Cost inflation has limited expected margin growth
Lack of new discoveries and real reserve growth
Poor capital allocation decisions/company missteps
COST INFLATION
18
Total Capex
Gold Price
Total Cash Cost
All in Cost
0
100
200
300
400
500
600
700
800
900
1,000
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
2000
Bas
e =
100
Total Capex Gold Price Total Cash Cost All in Cost
2012 CAGR
20%
16%
11%
15%
Total Capex = development + sustaining capital expendituresAll in Costs = total cash cost + development capex + sustaining capex + exploration cost
Source: Bloomberg, Scotiabank GBM
Cost Increases Nearly Equivalent to Rise in Gold Price
COST INFLATION
2.3%
2.8%
4.3%
1.7%1.0%
3.0%
19
Significant Portion of Cost Inflation is Avoidable
Components of all-in cost 1 inflation for C90 producer
Mine conditions decline
Recovery decline
Grade decline
Mine real site inflation
USD weakness
CPI
Nominal geological inflation2
Nominal cost inflation
1 Costs include depreciation and sustaining capex, but not growth
2 Estimated based on study of total factor productivity in Australia and Canada, which showed average geological inflation of 3–3.5% over 30 yearsSource: McKinsey Mining Practice, GFMS
2001-11
BASED ON CANADA AND AUSTRALIAN MINE SAMPLE
15.1%
text
ALL- IN COST REPORTING
20
I M P R OV E D C A S H C O S T D I S C LO S U R E
By-product cash costs Current metrics do not capture all expenditures key to analyzing a company’s profitability
More complete picture of industry profitability to stakeholders
More effective correlation to current gold equity valuation
Working towards a consistent, industry-wide standard
textSustaining capital
textCorporate general and administrative expense
textExploration expense
What’s included: Why?
EXPLORATION INVESTMENT HAS NOT GENERATED DISCOVERY EXCITEMENT
21
0
10
20
30
40
50
60
70
80
90
0
2
4
6
8
10
12
14
16
18
Gold discovered in deposits of +1moz reservesor +2moz resourcesMoz
Total explorationspending1
Billions
20111009080706050403020120001999
Discovery Exploration
CAGR
23% p.a
-28% p.a
Growth in exploration spending
Growth in discoveries
Source: Lassonde, MEG
Gold Discovered in Large Deposits has Declined while Exploration Spending has Increased
GOLDCORP – HOW WILL WE CHANGE THE PARADIGM?
CHALLENGES FACING THE GOLD INDUSTRY
23
DELAYED FCF
Missed guidance Revamped planning and forecasting
Lack of growth
Poor capital allocation decisions
Operating cost escalation
Quality reserve growth Only N.A. senior with YoY growth
Operating for Excellence
A CLEAR PATH TO FCF
Disciplined M&A and divestitures No writedowns
GoldcorpIndustry
CONSISTENT STRATEGIC FOCUS
24
Peer-Leading Balance Sheet
Responsible Mining
Practices
Low Political
RiskTOGETHER CREATING
SUSTAINABLE VALUE
Quality Growth
Cost Management
ALL- IN SUSTAINING CASH COSTS
Goldcorp Barrick Kinross Newmont0
200
400
600
800
1,000
1,200
By-product cash cost All-in sustaining cash cost
US$
/oz
25
Goldcorp is the Lowest Among its Peers
As of Dec. 31, 2012
COMMITMENT TO COST CONTAINMENT
Operating for ExcellenceA GLOBAL INITIATIVE
26
ROBUST DEVELOPMENT PIPEL INE
CAMINO ROJO (SULPHIDES)
PEÑASQUITO UG
El MORRO U/G
CAMINO ROJO (OXIDES) (2016)
EL MORRO
AGUA RICA
CERRO BLANCO
CERRO NEGRO (2013)
ÉLÉONORE (2014)
COCHENOUR (2015)
PUEBLO VIEJO (2012)
PEÑASQUITO (2010)
LOS FILOS (2008)
MARLIN (2006)
RED LAKE & OTHER OPERATING MINES*
SCOPING
FEASIBILITY
CONSTRUCTION
PRODUCTION
Quality Production Growth
* PORCUPINE, MUSSELWHITE, EL SAUZAL, ALUMBRERA, MARIGOLD, WHARF
27
5 YEAR PRODUCTION GUIDANCE
2012A 2013E 2014E 2015E 2016E 2017E
2.4
2.55 - 2.8
3.2 - 3.5
3.5 - 3.83.8 - 4.0
4.0 - 4.2
28
Gold production (Moz)
Increasing Production ~70%
Realistic, Achievable Growth Profile
LOW CAPITAL INTENSITY PROJECTS
(as at Dec. 31, 2012)
SPENT COMMITTED OUTSTANDING
$3.1B
$0.4 B
$2.0B
Capital Spending for Projects Contributingto 5-Year Growth Profile
LOW CAPITAL COST / OZ OF <$240* Contributing to 5-year growth: Pueblo Viejo, Cerro Negro, Éléonore, Cochenour and Camino Rojo 29
Strong Acquisitions Lead to High Quality Projects
SUCCESSFUL CAPITAL ALLOCATION STRATEGY
30
Barrick Newmont Kinross Goldcorp-10%
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
2012 2011 2010 2009 2008 2007
* Barrick includes losses on capitalized gold contracts
5 Year Impairment Losses as a % of Current Book Equity
STRONG CASH FLOW GROWTH (‘13E – ‘15E)
31Source: Bloomberg consensus (as of Mar. 12, 2013) Dollar figures are cash flow per share estimates 2013E – 2015E
Quality Production Growth Translates into Increasing Cash Flow
Kinross Newmont Barrick Yamana Agnico Goldcorp
-8%
-1% 8%14% 16%
51%
2013E 2014E 2015E
$3.13
$4.26 $4.73
RETURNING SHAREHOLDER VALUE
2009 2010 2011 2012 2013E
$0.18 $0.21
$0.41
$0.54$0.60
32
Dividend ($ per share)Dividend up 233% since 2009Dividend ($ per share)1
1Dividend increases (annual): Oct. 27, 2010 - $0.36/share; Feb. 24, 2011 - $0.40/share; Dec. 5, 2011 - $0.54/share; Jan. 7, 2013 - $0.60/share2Source: Bloomberg consensus (as of Mar. 12, 2013)
KGC ABX AUY GG NEM
11%14% 14%
19%
25%
10%12% 12%
14%
21%
2013E 2014E
Dividend as % of Operating Cash Flow2
Significant return of capital to shareholders
Consistent Dividend Growth
33
ALLOCATION OF FREE CASH FLOW
Fund existing 70% growth
profile
Invest in high return organic
growth
Flexibility for selective
M&A
Regular dividend growth
Management’s Most Important Decisions
CONCLUSIONS
34
Charting the Path towards Long Term Success
The gold bull market is far from over
Gold equities can outperform gold price
Quality growth, cost containment and disciplined capital allocation will determine the winners in this market
MARCH 21, 2013Mines & Money Hong Kong
STRATEGY.DISCIPLINE.EXECUTION.
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