Dear Shareholders,
More than ten years have passed since this company made its first acquisition and I remember it well: we were a brand new company with six employees, a market capitalization of $10 million, and a sense of absolute confidence that the price of gold was about to rise. That said, I don't think we, or anyone else, expected that the price would grow by 500% over the decade!
Back then, we were intense – aggressive, some said – in our desire to acquire gold producing assets; not development or exploration properties, but active, producing gold assets that would deliver the kind of rapid growth that we were after. That first acquisition, the Luismin mine in Mexico, put us on a growth path that has never faltered. From zero ounces of gold in 2001 to 2.5 million ounces in 2011. It's pretty incredible: a company that's only ten years old is among the ten largest companies in Canada by market capitalization.
Since that first acquisition, we picked up asset after asset, because our confidence in gold, and in ourselves, remained strong. Each time we made an acquisition, invariably there would be an analyst or someone in the mining community with an opinion about the price Goldcorp had paid. But six months later, the price of gold would have moved, or the asset's quality would have become evident, and people saw that we'd been correct in our expectations.
Ten years on, we at Goldcorp are as excited as ever about the gold mining business. We know from experience that gold is not getting any easier to find – and that fact, combined with global financial challenges, means that the price of gold is likely to continue to move upward. And because of the acquisitions that we have made, we are positioned to feed that demand for gold like no one else. We have projects coming on-stream that will increase our production by 70% over the next five years. I know of no other senior mining company in the world with that kind of growth profile.
Looking back – and forward – I'm very proud of the opportunities that Goldcorp's success has created, for our people, our shareholders, and for all of the communities in which we operate. It's our success that drives the advantages and benefits that we can deliver. It's our success that puts us in a position to donate over $25 million in charitable contributions annually.
I am extremely proud that we, as a company, have gone from a total worth of $10 million to paying dividends of nearly $10 million a week, in only ten years. And I think the next ten years will be just as exciting.
IAN TELFER
Chairman
To Our Valued Shareholders,
In 2011, a continued focus on our proven strategy resulted in excellent financial results and further enhanced Goldcorp's industry-leading position. Thanks to the efforts of our entire team, we achieved strong, low-cost gold production, record revenues and cash flow, another year of gold reserve growth and great progress on our high-quality growth projects.
With the strong market for gold, our growing low-cost production in stable jurisdictions throughout the Americas continues to present an attractive risk profile for investors seeking exposure to gold, and positions us well for profitable growth in 2012 and beyond.
Driven by stable production at our mines and the continuing emergence of Peñasquito, gold production for the year totalled 2.5 million gold ounces at total cash costs* of $223 per ounce on a by-product basis. For the first time, revenues surpassed the $5 billion mark, while operating cash flow before changes in working capital* increased 59% to $2.7 billion. Adjusted net earnings* were a record $1.8 billion, or $2.22 per share, compared to $1.0 billion or $1.43 per share in 2010. Our ability to generate growing cash flow coupled with our sound balance sheet allowed us to return additional value to our shareholders in the form of a higher dividend. In the last year and a half we have increased the dividend over 200%, and we intend to remain near the top of our sector in the percentage of operating cash flows we return to shareholders.
Exciting exploration results at our mines and projects led to our eighth consecutive year of growth in gold reserves, which increased 8% to nearly 65 million ounces. On a per-share basis, gold reserves grew 6%, continuing a strong annual growth trend in this key gold leverage metric. Our finding cost per ounce of gold was just $14, and just 20% of our reserve increase was due to the use of a higher gold price to calculate reserves, meaning approximately 80% came from drilling success.
Of particular note, in just the first year of ownership at the very prospective Cerro Negro project in Argentina, we announced a doubling of reserves in April 2011. Later in the year we added another 280,000 ounces of gold reserves to bring the year-end total to over 4.5 million ounces. This is a large and growing gold resource, and with continued strong drill results, we expect another significant reserve increase at Cerro Negro in 2012.
Mexico: operational excellence and reserve growth
In 2011, we enhanced our position as Mexico's largest gold producer on the strength of the first full year of production at Peñasquito and another record year at Los Filos. Despite a temporary delay in ramping up to full capacity as we implemented operating refinements, Peñasquito generated approximately $360 million in cash flow from operations. To illustrate the significance of this achievement, if we convert Peñasquito's other metals production (silver, zinc and lead) to a gold-equivalent figure, production has already approached one million ounces – in the mine's first year. In 2012, Peñasquito is forecast to produce 425,000 ounces of gold, an increase in production of more than 65%, at very low cash costs. The future is very bright at Peñasquito, and our shareholders can expect many years of tremendous contributions as operations advance.
At Los Filos, gold production increased 10% to a record 336,500 ounces at cash costs of $463 per ounce. Successful exploration efforts during 2011 led to a 42% increase in proven and probable gold reserves, to 7.8 million ounces. Just as importantly, Los Filos has accomplished this with outstanding safety performance.
Canada: strong performance and exploration success
Thanks to strong performance at our three Ontario-based gold mines, we are maintaining our longtime position as Canada's largest gold producer. At the Red Lake mine, production totalled 622,000 ounces at total cash costs of $360 per ounce. In 2012 we expect gold production of 650,000 ounces, benefiting from higher capacity utilization and continued development in the deeper portions of the mine.
Porcupine's production continues to be strong, exceeding 273,000 ounces. A 23% increase in proven and probable gold reserves was an important factor in our overall gold reserves increase. The nearby Hollinger open pit project, which is expected to begin production in the third quarter of 2012, will provide a new source of ore for Porcupine's processing facility. Also in Ontario, ongoing exploration continues at Musselwhite in efforts to add to the newly discovered higher-grade Lynx zone.
Central and South America: record production and steady development progress
The Marlin mine delivered record gold production of 382,400 ounces for the year, as the final, higher-grade portions of the open pit were mined. The mine has now transitioned to primarily an underground operation. In December we were pleased to announce that the Inter-American Commission on Human Rights notified the Government of Guatemala that it no longer seeks to suspend mining operations at Marlin. Government investigations have demonstrated what we at Goldcorp have known all along – that Marlin has not damaged the environment or the health of the communities in the mine's vicinity. We are very proud of the positive contributions our operations at Marlin have made in the local communities.
A growth profile unmatched in the industry
Goldcorp's gold production is forecast to grow approximately 70% over the next five years to 4.2 million ounces in 2016. New projects will make significant contributions to this growth, with first gold production forecast as follows: Pueblo Viejo, mid-2012; Cerro Negro, second half 2013; Cochenour, late 2014; Camino Rojo, 2014; Éléonore, late 2014; and El Morro, 2017.
At Pueblo Viejo, construction is nearly complete on this 40% owned gold project in the Dominican Republic. It is expected to contribute slightly to our overall 2012 production profile starting mid-year and is forecast to achieve an annual average of 415,000 to 450,000 ounces of gold in the first five years of full production, at cash costs of less than $350 per ounce.
The high-grade Cerro Negro deposit is positioned to be our next source of new gold production. With production expected to average approximately 550,000 ounces of gold in its first five full years of production, Cerro Negro is well positioned to become our next cornerstone gold mine. In December 2011, provincial authorities in Santa Cruz approved the amended Environmental Impact Assessment and construction is advancing on schedule. Mining will initially take place in the Eureka, Mariana Central and Mariana Norte veins, and the development of each vein for production is progressing well. The Eureka decline, which will access the first ore from Cerro Negro, will soon reach the halfway point of the total planned decline length of approximately 3,900 metres. It has now extended below the 450-metre elevation level, an important horizon that will facilitate the commencement of bottom-up mining of the top half of the deposit in 2012. Excavation of the access ramps into the Mariana Central and Mariana Norte veins is also underway.
The Cochenour gold project in Ontario is a key component of our overall optimization plan for the long-term future of the Red Lake operations. Construction of the five-kilometre Cochenour–Red Lake Haulage Drift is expected to be about two-thirds complete by the end of 2012, which will allow the development of significantly more drill stations to test the potential of the underexplored area between the mines. Preparation for the sinking of Cochenour's production shaft also advanced well during the year.
Near the end of 2011, the high-grade Éléonore gold project in Québec commenced construction of a production shaft following receipt of the certificate of authorization issued by the Québec Minister of Sustainable Development, Environment and Parks. The exploration ramp, which has now advanced to over 830 metres in length, will provide drilling access close to the ore body. This will allow our exploration team to define and delineate the resources within the upper portion of the mine. Once the exploration shaft sinking is completed, the development work at the 650-metre level will enable exploration drilling of the deeper parts of the ore body, which is expected to commence in the fourth quarter of 2012.
Camino Rojo in Mexico is demonstrating great potential as a source of low-cost gold production near Peñasquito. Acquired in 2010 for its oxide gold reserves, exploration success has continued to demonstrate a growing opportunity for significant sulphide gold production over the longer term. Our 2011 drill program completed a total of 77,360 metres drilled in 353 holes and an initial feasibility study is on track for completion in mid-2012.
At Noche Buena, another advanced stage project near Peñasquito, the 2011 drill program continued to explore the lateral and vertical extension of the higher-grade trends in the oxides. Geologic modeling will form the basis of the resource to be used in a feasibility study, which is expected to be completed in mid-2012.
In January 2012, we were pleased to announce our decision to proceed with construction of our 70% owned El Morro copper-gold project in Chile. Construction at site is expected to begin in September 2012 and extend over a five-year period at a capital cost of $3.9 billion. Initial production is expected in 2017 with full production expected in 2018. Over its 17-year mine life, El Morro is expected to produce an average of over 210,000 ounces of gold and 200 million pounds of copper per year to Goldcorp's account.
Focus on safety and sustainable prosperity
As a company, and as individuals, Goldcorp is committed to responsible mining practices that protect the health and safety of our workers and the quality of the environment that we all share. Our concern and actions extend to the social and economic effects of our activities, with a goal of generating sustainable value for all our stakeholders. Our focus on Corporate Social Responsibility programs was refined and extended throughout the year. We saw improvement in overall company-wide safety performance for the fifth consecutive year. We maintained the certification of all our nominated sites under the International Cyanide Management Code. We were gratified to see these and many other accomplishments recognized by NASDAQ, who named us as one of the world's Top 100 companies for sustainability practices.
Looking forward
I would like to thank Goldcorp's more than 14,500 employees and contractors for their dedication and commitment to excellence. I also wish to extend my appreciation to our Board of Directors. Their valued guidance and support have helped Goldcorp achieve another year of outstanding performance. I am also happy to welcome Blanca Treviño de Vega to the Board. A highly respected and successful businesswoman, she brings to Goldcorp deep management experience and a profound understanding of the business and cultural environments in Latin America.
With consistent, reliable production from our existing mines and continued progress in bringing our growth pipeline ever closer to production, we are confident that the future holds many more years of sustained high performance. We look forward to sharing that success, year after year, with all our shareholders.
CHUCK JEANNES
President and Chief Executive Officer
*These non-GAAP financial measures are referred to throughout this document – see the MD&A on pages 29–95 of this Annual Report for further details.
| For the eighth straight year, our exploration programs succeeded in growing our reserves and resources. Revenues increased to a record $5.4 billion. And we paid dividends totalling $330 million. |
| With disciplined management, we will achieve our production goal of 4.2 million ounces of gold annually, at some of the lowest cash costs in the senior gold sector, by 2016. |
| Goldcorp is committed to responsible mining practices that protect the health and safety of our workers and the quality of the environment. |