'Gold Mining: Delivering on the Sector’s Potential in 2013' by Chuck Jeannes, Goldcorp at Mines and Money Hong Kong 2013


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  • Key is investment demand – underlying factors are positive: real interest rates, inflation and safe havenCentral banks positive, Jewellrey net neutral
  • Pretty amazing message when look over 40 years…2 Points: much of the increased investment ownership over the last decade came from central banks. What happens now when they are competing with investors for gold?And what do you see in the world economic and monetary system that says central banks will reverse the trend of the last 5 years and start hoarding dollars or Euros instead?2 points: Coupled with anticipated central bank buying (see graph showing net decline in sovereign gold reserves since 1979) we see heightened demand continuing.Asset inflation has been understated, weakening currencies should result in a favorable gold forecasts. Although this graph is older than a year, the message is identical … recent central bank buying confirms that they are building reserves in gold.
  • Gold has no real yield or return (although some gold equities do), though in nominal dollars it appears so. Real interest rates “flip the switch to gold” at below 2%. Currently, we have engineered low real interest rates in most of the developed world (near zero rates) with positive effects on gold prices.So when other currencies have low or negative yield then gold does very well, often over 20% p.a.
  • Now we turn to US domestic factors as an indicator of the world economy and one of the largest drivers of private gold investment.View of the Fed is a low inflationary, low real interest rate and high unemployment environment for the foreseeable future. As you could see from the chart above, this is a good environment for gold investment returns.The Fed views the unemployment-inflation relationship as inverse, assumes Phillips Curve relationship & openly stated in 2012 that QE will continue until unemployment drops below 6.5% (currently around 7.9% - January 2013) or inflation rises above 2.5%.More recently, they have declared that this is merely a guide, & not a committed threshold, thus implication that QE may continue.
  • Not always just the CPI number – look at the base data. More money = higher gold.
  • Same…more US debt = higher gold. So, do you expect US debt to go down any time soon?
  • More volatility but higher over time.
  • Really the symptoms – what’s the reason? The ETF has changed the business. My 30 years…
  • 'Gold Mining: Delivering on the Sector’s Potential in 2013' by Chuck Jeannes, Goldcorp at Mines and Money Hong Kong 2013

    1. 1. Presented at:www.minesandmoney.com/hongkong
    2. 2. STRATEGY.DISCIPLINE.EXECUTION. MARCH 21, 2013 Mines & Money Hong Kong
    3. 3. AGENDAGOLD, THE GOLD SECTOR ANDGOLDCORP Gold price – is the bull market over? Gold equities – why the underperformance? Goldcorp – how are we changing the paradigm? 3
    4. 4. FO RWA R D LO O K I N G STAT E M E N T S 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
    6. 6. WHY GOLD? 12 Consecutive Years of Gold Price Growth 516% increase over 2000 Safe haven/ asset class Inflation 2000 hedge China 2012 factor Stable investment demand Growing Continued Currency physical Flat mine debasement of Central bank protection demand supply international buying currenciesDec. 31, 2000 – Dec. 31, 2012 6
    7. 7. THREE FACTORS HAVE THE GREATEST IMPACT ON PRICEPrivate Investment Demand is the Determining Factor Private investment Physical demand has grown steadily, especially in emerging markets Shorter term speculative demand is quite volatile and sensitive to: Real interest rates Market uncertainty or volatility Inflation expectations Central banks Central banks in developing countries have been increasing gold reserves Jewellery Jewellery demand in tonnage terms has decreased over the past decade but continues to increase in dollar terms due to emerging market demand 7
    8. 8. CENTRAL BANKS With Increases in Gold Price, Growth in Money Supply - Reserves Are Still Low World Offical Gold Reserves 38,000 36,000 34,000 Tonnes 32,000 30,000 28,000 1980 2012 1970 1972 1974 1976 1978 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010Source: World Gold Council. 8
    9. 9. GOLD & SILVER RETURNS - US REAL INTEREST RATES Low Real Interest Rates Correlate to High Gold & Silver Prices Gold & Silver Returns in Different US Real Interest Rate EnvironmentsSource: Deutsche Bank, Bloomberg. 9
    10. 10. 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
    11. 11. YOU CAN’T PRINT MORE GOLD... Strong Correlation between Growing Money Supply and Higher Gold Price 3,000 2,000 M1 Gold 1,800 2,500 1,600 US M1 Money Supply ($Billions) 1,400 Gold Price (US$/oz) 2,000 1,200 1,000 1,500 800 600 1,000 400 200 500 0 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012Source: Bloomberg data Jan. 12, 2012 – Mar. 4, 2013 11
    12. 12. US FEDERAL DEBT AND GOLD PRICE US Debt Levels will Continue to Grow Massive Debt Burden Supports Gold Long TermSource: U.S Office of Mgmt & Budget, Bloomberg, BMO CM 12
    13. 13. FROM 2012 TO 2013 Another Year of Volatile Gold Price Performance? 1,850 Key Drivers of Gold Price 1,800 Volatility in 2012: 1,750 Fed quantitative 1,700 easing 1,650 Economic uncertainty $ per ounce 1,600 in Europe 1,550 1,500 1,450 1,400 Jan-12 Mar-12 May-12 Jul-12 Sep-12 Nov-12 Jan-13 Mar-13Source: Bloomberg data Jan. 12, 2012 – Mar. 12, 2013 13
    15. 15. DECLINING VALUATIONS OF GOLD COMPANIES Senior/Intermediate Historical Price to Net Asset Value Multiple The graph below highlights the multiple contraction of senior gold producers over recent years (as P/NAV $1,900 2.10 $1,700 Sr./Int. P/NAV Multiple Spot Gold 1.90 US$/Oz $1,500 1.70 P/NAV Multiple (5%/Spot) Spot Gold (US$/Oz) $1,300 1.50 P $1,100 1.30 $900 1.10 $700 0.90 $500 0.70 $300 0.50 Jul-03 Jul-04 Jul-05 Jul-06 Jul-07 Jul-08 Jul-09 Jul-10 Jul-11 Jul-12Source: Canaccord Genuity. 15
    16. 16. GOLD STOCKS HAVE UNDERPERFORMED GOLD Positive Absolute Returns but Lagging Gold Price Performance 470% Gold Price 370% +358% 270% Goldcorp +161% 170% Peers* +75% Philadelphia Gold / Silver Index 70% +75% Dow Industrials +68% -30% 2003 2005 2007 2009 2011 2013* Peers include: Barrick, Newmont, Kinross and Agnico Source: Bloomberg data Jan. 1, 2003 – Mar. 12, 2013 16
    17. 17. REASONS FOR GOLD STOCK UNDERPERFORMANCEAll 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 17
    18. 18. CO ST I N F L AT I O N Cost Increases Nearly Equivalent to Rise in Gold Price Total Capex = development + sustaining capital expenditures All in Costs = total cash cost + development capex + sustaining capex + exploration cost 1,000 2012 CAGR 900 Total Capex 800 20% 700 Gold Price 16% 600 2000 Base = 100 All in Cost 500 15% 400 Total Cash Cost 11% 300 200 100 0 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 Total Capex Gold Price Total Cash Cost All in CostSource: Bloomberg, Scotiabank GBM 18
    19. 19. CO ST I N F L AT I O N Significant Portion of Cost Inflation is Avoidable Components of all-in cost 1 inflation for C90 producer Grade decline 15.1% 3.0% Recovery decline Nominal geological 1.0% inflation2 1.7% Mine conditions decline 4.3% Mine real site inflation Nominal cost 2.8% USD weakness inflation 2.3% CPI 2001-11 BASED ON CANADA AND AUSTRALIAN MINE SAMPLE1 Costs include depreciation and sustaining capex, but not growth2 Estimatedbased 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 19
    20. 20. A L L - I N CO ST R E P O RT I N G What’s included: Why? By-product cash costs text Current metrics do not capture all expenditures key to analyzing a company’s profitability Sustaining capital text More complete picture of industry profitability to stakeholders More effective correlation to current Corporate general and text gold equity valuation administrative expense Working towards a consistent, industry-wide standard Exploration text expense IMPROVED CASH COST DISCLOSURE 20
    21. 21. EXPLORATION INVESTMENT HAS NOT GENERATED DISCOVERY EXCITEMENT Gold Discovered in Large Deposits has Declined while Exploration Spending has Increased Growth in exploration Growth in Discovery Exploration spending discoveries Gold discovered in deposits of +1moz reserves Total exploration or +2moz resources spending1 CAGR Moz Billions 90 18 23% p.a 80 16 70 14 -28% p.a 60 12 50 10 40 8 30 6 20 4 10 2 0 0 1999 2000 01 02 03 04 05 06 07 08 09 10 2011Source: Lassonde, MEG 21
    23. 23. C H A L L E N G ES FAC I N G T H E G O L D I N D U ST RY Industry Goldcorp Revamped planning and Missed guidance forecasting Quality reserve growth Lack of growth Only N.A. senior with YoY growth Poor capital allocation Disciplined M&A and divestitures decisions No writedowns Operating cost escalation Operating for Excellence D E L AY E D FC F A C L EA R PAT H TO FC F 23
    24. 24. CO N S I ST E N T ST R AT EG I C FO C U S Quality Growth Cost Management Low Political TOGETHER Risk CREATING SUSTAINABLE VALUE Peer-Leading Responsible Balance Mining Sheet Practices 24
    25. 25. A L L - I N S U STA I N I N G C A S H CO ST SGoldcorp is the Lowest Among its PeersAs of Dec. 31, 2012 1,200 1,000 800 US$/oz 600 400 200 0 Goldcorp Barrick Kinross Newmont By-product cash cost All-in sustaining cash cost 25
    26. 26. CO M M I T M E N T TO CO ST CO N TA I N M E N T Operating for Excellence A GLOBAL INITIATIVE 26
    28. 28. 5 YEAR PRODUCTION GUIDANCERealistic, Achievable Growth ProfileIncreasing Production 4.0 - 4.2~70% 3.8 - 4.0Gold production (Moz) 3.5 - 3.8 3.2 - 3.5 2.55 - 2.8 2.4 2012A 2013E 2014E 2015E 2016E 2017E 28
    29. 29. LOW C A P I TA L I N T E N S I T Y P ROJ EC T S Strong Acquisitions Lead to High Quality Projects (as at Dec. 31, 2012) Capital Spending for Projects Contributing to 5-Year Growth Profile $3.1B $2.0B $0.4 B SPENT COMMITTED OUTSTANDING* Contributing LOW CAPITAL COST / OZ OF <$240 to 5-year growth: Pueblo Viejo, Cerro Negro, Éléonore, Cochenour and Camino Rojo 29
    30. 30. S U C C ES S F U L C A P I TA L A L LO C AT I O N ST R AT EGY 5 Year Impairment Losses as a % of Current Book Equity 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% Barrick Newmont Kinross Goldcorp -10% 2012 2011 2010 2009 2008 2007* Barrick includes losses on capitalized gold contracts 30
    31. 31. STRONG CASH FLOW GROWTH (‘13E – ‘15E) Quality Production Growth Translates into Increasing Cash Flow $4.26 $4.73 51% $3.13 14% 16% 2013E 2014E 2015E 8% -1% -8% Kinross Newmont Barrick Yamana Agnico GoldcorpSource: Bloomberg consensus (as of Mar. 12, 2013)Dollar figures are cash flow per share estimates 2013E – 2015E 31
    32. 32. RETURNING SHAREHOLDER VALUE Consistent Dividend Growth Dividend ($ up 233% Dividend per share) Significant return of since 2009 capital to shareholders Dividend ($ per share)1 Dividend as % of Operating Cash Flow2 $0.60 25% $0.54 21% $0.41 19% 14% 14% 14% 11% 10% 12% 12% $0.18 $0.21 2009 2010 2011 2012 2013E KGC ABX AUY GG NEM 2013E 2014E1Dividend 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) 32
    33. 33. ALLOCATION OF FREE CASH FLOWManagement’s Most Important Decisions Fund existing Invest in high Flexibility for Regular 70% growth return organic selective dividend profile growth M&A growth 33
    34. 34. CONCLUSIONSCharting 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 34
    35. 35. STRATEGY.DISCIPLINE.EXECUTION. MARCH 21, 2013 Mines & Money Hong Kong
    36. 36. Save the Date for Mines and Money Hong Kong 2014 March 24-28, 2014 - Hong Kong Convention & Exhibition CentreRegister your Interest at:www.minesandmoney.com/hongkong