Tuesday, December 19, 2006

Goldcorp's Small Exploration Budget

GOLDCORP INC. (NYSE:GG - News) forecast production of approximately 2.8 million ounces of gold in 2007 at an anticipated total cash cost of $150 per ounce. By-product assumptions used to forecast cash costs are silver at $10 per ounce and copper at $3 per pound.

The exploration expense for 2007 is forecast at approximately $55 million or 10% of the current cash position. Split almost evenly with $23 million in Canada and $22 million in Mexico. This seems anemic but admittedly the cap-ex budget of $750 million exceeds cash therefore financing will be required and how much is left for exploration.

Gold and mineral companies are frequently acquisition oriented. Goldcorp’s signal is that they will allow others to explore and they will show up in the last minute after the risk and heavy lifting has been done.

Has Goldcorp become just a gold developer with substantial production? If so the stock price should reflect gold prices and hedge activities if any. So why invest directly and take-on the risk of corporate problems or the inevitable environmental problem that usually befuddles mining operators. Gold may be played more efficiently.