Goldcorp (GG)

As the value of the dollar drops, gold is looking increasingly attractive.

Several other mines have had improved results and are being ramped up for greater processing. The downside is that costs at Penasquito and elsewhere have also risen substantially. However the price of gold has risen much higher and much faster then the costs of extracting the gold. Silver as well has risen substantially higher than the mining costs. This keeps GG profit safe and enables further exploration and the ability to process lower grade ore as it is offset by the new higher prices realized for the metals. GG mines a fair amount of Copper as well as other base metals and these have also appreciated in terms of the realized prices.

Goldcorp's recent sale of its SLW shares have deposited nearly $1.5B USD onto their books. This was almost entirely profit as the original SLW shares cost was estimated at around $50M. Wall Street never seemed to give GG much credit for holding 49% of SLW even though SLW is a huge cash making machine. Goldcorps acquisition of (or by) GLG in 2006 has left GG holding some very, very impressive mines that have consistently improving drill results. The P&P reserves at Penasquito jumped by almost 40% last year when one takes into account the Silver and Lead. Gold alone jumped over 30%.

So with the sale of SLW by GG they now have an ability to retire a nice chunk of debt they had acquired to facilitate the merger and build out the mines as well as hold onto substantial amounts of cash to finalize the build out for several projects. Penasquito has been referred to as one of the most, if not the most, robust development projects of any of the major producers. Red Lake (now combined with Campbell)will produce close to 1 million ounces of gold in 2008 at a cost well below $300 per. That one mine should net GG a profit close to half a billion dollars in 2008. With almost all of GG's mines located in North America politics will not impede the ability to mine profits from the holdings.

GG retains ownership of 75% of the silver at Penasquito (one of the largest silver mines in the world) and received a nice upfront payment from SLW for the other 25% along with ongoing payments for delivered silver, helping fund the deal. Silver is poised to rise dramatically over the next few years as it is both a safe haven investment and a consumable metal with new uses being announced almost every month. From energy (solar) to medical. The historic ratio between the price of silver and the price of gold is about as low as recent history has seen and even a modest reversion towards the mean will see silver prices rise quit quickly and quite steeply. In 2006 silver was well under $7 an ounce and languishing. Now in 2008 it is approaching $20. Even with that dramatic rise the ratio is still out of whack and silver needs to correct up quite a bit. I will not even comment on any type of perceived silver shortage in the NYMEX arena as it is all speculation.

In conclusion, GG's Q1 results should get a lot of attention due to the one time cash infusion from the sale of the SLW shares and once noticed it will stay in the limelight due to its solid management, low cost production and its outstanding mines. With the price of gold nearing $1000 an ounce and GG able to avg. production costs under $300 per ounce it will be hard for Wall Street to ignore. Expect GG to make new all time highs later this year. 2009 will see even greater growth as mine production ramps up and almost all analysts expect much higher prices for gold and silver for years to come.

Goldcorp and other gold-related stocks are underpriced significantly. Consider these facts: Gold production worldwide is at a 50-year low; the economies of both India and China are expanding rapidly, creating wealth unseen in either country; newly wealthy Chinese and Indians will want to purchase gold for status, to hedge against inflation and the devaluation of their currency.

Unlike oil, gold is a commodity that is not destroyed by the consumer.

Foreign countries holding billions in US dollars will want to diversify and gold is historically the safe haven sought by people skeptical about the value of paper money.