GOLDCORP FINANCIAL ANALYSIS & INVESTMENT RECOMMENDATION

COMPANY OVERVIEW
Goldcorp is a leading mineral resource company engaging in the operation, exploration and acquisition of precious metals in regions across North and South America. The company has continued to focus primarily on the gold, silver, copper, lead & zinc. Goldcorp’s shares are jointly listed on the Toronto Stock Exchange (TSX) and New- York Stock Exchange (NYSE).

Operations: As at December 2013, Goldcorp’s principal producing mining properties are located in Red Lake, Porcupine and Musselwhite gold mines in Canada; the Peñasquito gold/silver/lead/zinc mine and the Los Filos and El Sauzal gold mines in Mexico; the Marlin gold/silver mine in Guatemala; the Alumbrera gold/copper mine (37.5% interest) in Argentina; the Wharf gold mine in the US; and the Pueblo Viejo gold/silver/copper mine in the Dominican Republic (40% interest). The Company's 66.7% interest in the Marigold mine in the US was reclassified as a discontinued operation at December 31, 2013.

INDUSTRY OUTLOOK
Goldcorp operates in the Metals and Mining industry which involves the extraction and sale of minerals such as gold, silver, iron, copper, zinc and other precious metals. The industry is largely dominated by large multinational miners due to huge entry barrier created by the capital intensiveness of the business. The companies that operate in this industry are highly leveraged operationally and enjoy a significant advantage due to economies of scale.

Furthermore, the prices of metals play a significant role in the bottom line profit for large mining companies. Overall, the price of commodities has continued to fall significantly and gold particularly has not recovered from its peak price in 2012. There is an inverse relationship between gold prices and financial market performance. Gold is considered as the safer investment during periods of economic volatility. During periods of high interest rates, investors generally seek investments in financial instruments and demand for gold drops and conversely during periods of low interest rate. Gold prices year-to-date has continued its free fall and professional analysts (Goldman Sachs Jeffery Currie) say the worst is not over yet.

KEY EVENTS IN 2013 FINANCIAL YEAR
Price of Gold: In the course of the 2013 financial year, the price of gold fell from an average of $1669 in 2012 to $1410 in 2013. Even though Goldcorp produced more gold in 2013 when compared to 2012 (i.e 2.6moz and 2.3moz) the change in price significantly impacted on the company’s sales.

Impairment Charges: Goldcorp Inc recognized a significant impairment charge in the course of 2013 Goldcorp recognized a total of $2,7Billion in impairments. Most of which were significant write-downs on its Cash Generating Units and Mining interests.

Change of accounting policy: In 2012, Goldcorp Inc was required by IFRS to change the method of incorporating investments in associates from equity method to investment method. This accounted for a significant drop in the company’s drop in turnover in 2012. Furthermore, in 2013 there was a change in accounting policy which required the company to make significant adjustments to its investments in joint ventures, associates and carrying value of some of its mining interests.

FINANCIAL ANALYSIS
SALES & PROFITABILITY 2011 2012 2013
NET SALES 5,362 4,660 3,687
% GROWTH N/A -13.09% -20.88%
COGS/SALES 38.08% 42.08% 54.00%
GPM 48.97% 45.36% 28.80%
SGA/SALES 4.27% 5.26% 6.40%
NET INCOME 1,551 1,311 (3,195)
ROS 35.08% 36.37% -71.66%
Net sales has continued to reduce across the years under review based on the continuous drop in the price of gold and also contributory to this is the required change in accounting policy for consolidation of investments in joint ventures and associates. COGS/Sales have also grown significantly over the years and this can be attributed to the huge jump in the average cost per ounce of gold which grew from $279 to $538. Growth in SGA expenses growth was marginal, however due to the continuous drop in net sales SGA/Sales grew. Net income and return on sales (ROS) was negative as Goldcorp recognized several impairments to goodwill and the carrying value of some its mining assets to the projected change in recoverable amount of minerals and prices. We are quite worried about the company’s expected profitability into the future due to the continuous fall in the price and gold and impairment charges.
ASSET MANAGEMENT 2011 2012 2013
ARDOH 27 44 56
INDOH 4 3 3
APDOH 97 154 157
TOTAL ASSET TURNOVER 0.18 0.15 0.12
ARDOH has grown across the years; however the absolute figures for receivables have largely remain flat. The company has firm contracts for the sales of its minerals produced and inventory has also remained flat. APDOH grew in 2012 and remained flat in 2013 signifies the company’s ability to negotiate better payment terms with its suppliers. Overall, Goldcorp Inc has performed averagely in terms of asset management; however, due to deteriorating sales asset turnover continued a downward slide across the years.
LIQUIDITY & LEVERAGE 2011 2012 2013
WORKING CAPITAL 2,017 1,065 286
CURRENT RATIO 3.54 1.94 1.14
QUICK RATIO 2.85 1.33 0.79
LEVERAGE 3.80 3.85 3.01
DEBT TO EQUITY 0.36 0.35 0.50
Working capital has continued to reduce across the years due to the increasing trade creditors as well $832Million current portion of the company long term debt which fell due in 2013. We are quite confident of this company’s ability to meet its payment obligations due to the quality of its current assets and positive operational cashflow. Leverage ratios reduced in 2013 due to the $1.5Billion unsecured 5-year and 10-year notes. The proceeds were partly used to finance its current portion of long term debt and also the investment in the development of key assets to bring them to production.

CASHFLOW 2011 2012 2013
OPERATING CASHFLOW 2,097 1,900 906
FINANCING CASHFLOW 147 (394) 1,158
CASHFLOW COVERAGE 3.44 3.10 0.31
FINANCING PAYMENTS (353) (465) (536)
Cashflows from operating activities has continued to slide downwards across the years under review from over $2Bn in 2011 to under $1Bn in 2013. The impact of gold prices impacted the company’s cash from sales of minerals negatively by $1Bn and in a move to increase its production capacity and meet obligations falling due from maturing notes issued, the company issued notes totaling $1.5Billion. This significantly impacted its cashflow coverage ratios and increased financing payments. Overall, Goldcorp has been aggressive in the last 5 years with increasing capital. In 2009, senior debts were issued, in 2011 common capital was issued and 2013 unsecured debt notes were issued. Increasing the company’s debt significantly with the deteriorating operating cashflow conditions is a key indicator of future liquidity problems.
INVESTOR RATIOS 2011 2012 2013
BASIC EPS 2.34 2.09 (3.25)
DILUTED EPS 2.18 1.89 (3.25)
ROE 0.09 0.07 (0.13)
ROA 0.06 0.05 (0.09)
ROIC 0.08 0.08 (0.13)
DIVIDEND PAYOUT RATIO 0.18 0.25 (0.18)
NUMBER OF SHARES OUTSTNDG 804,467 810,409 812,040
All investor ratios slipped into negative in 2013 due to the one-time impairment charge in the same year. No common stocks were issued asides from holders of stock options. It is important to note that the company paid dividends in 2013 even after recording a huge loss due to impairment charges.

ANALYSIS OF MINERAL RESERVES
RESERVES/REPLACEMENT RATE 2011 2012 2013

EXISTING GOLD RESERVE (KOZ) 64,700 67,100 54,400
PRODUCTION RATE (KOZ) 2,515 2,396 2,667
REPLACEMENT RATE 4,700 2,400 (12,700)

ESTIMATED PROD. LIFE @ AVG CURR RATE 23.50 25.67 18.29
ESTIMATED PROD. LIFE @ ZERO RATE 26.7 28.0 20.4
RESERVES/REPLACEMENT RATE 2011 2012 2013

EXISTING SILVER RESERVE 1,177,000 1,160,000 818,000
PRODUCTION RATE 27,824 30,470 30,326
REPLACEMENT RATE (117,000) (17,000) (324,000)

ESTIMATED PROD. LIFE @ AVG CURR RATE 36.81 33.05 21.80
ESTIMATED PROD. LIFE @ ZERO RATE 42.30 68.23 26.9

RESERVES/REPLACEMENT RATE 2011 2012 2013

EXISTING OTHER RESERVES 5,373 5,763 5,583
PRODUCTION RATE 537 590 529
REPLACEMENT RATE (33) 390 (180)

ESTIMATED PROD. LIFE @ AVG CURR RATE 9.89 9.66 10.44
ESTIMATED PROD. LIFE @ ZERO RATE 10.00 9.77 10.55
Goldcorp Inc performed poorly in its exploration activities and mine development in 2013. The company severely depleted its existing reserves for gold, silver and other minerals significantly in 2013. At the current production rate, the company has 20 years to run out of gold production and 18.29 years if we estimate replacement as an average of the three years. Silver reserves have also been severely depleted dropping the estimated production life at zero replacement rates to 26 years in 2013 from 42 years in 2011.

STOCK PRICE PERFORMANCE
GOLDCORP STOCK PRICE CHART VS PRICE OF GOLD (SEPT 2013 – DATE)

The graphs above give us a pictorial representation of the performance of Goldcorp stocks quoted on the New York Stock Exchange in the last one year as well as the prices of gold in the last one year. There is a significant correlation between the prices especially at the times when the price of gold fell below $1,200 per ounce. This correlation is expected for a mineral company whose main source of revenue is from the sales of gold and other minerals.

FUTURE OUTLOOK
Our outlook for the performance of Goldcorp into the future will be based on its operational strength, financial performance, exploration activities, price of gold and other minerals and management quality.

Operational Strength - Strong - Marked by year-on-year increase in production.

Financial Performance - Weak - Cost control measure are inefficient and huge potential for asset write downs.

Exploration Activities - Weak - Continuous depletion of reserves and inability to delay in bring key assets to production due to social issues.

Management Quality - Strong - Our view on this was assessed mainly based on years of industry experience.
RECOMMENDATIONS
Our recommendations will be projected based on the investment horizon of the investor. Also, we will recommend either a sell, buy or hold option for each of the investment horizon category.

SHORT TERM (Stock is being held for capital appreciation without any keen interest in dividends pay out) – SELL RECOMMENDED

MEDIUM TERM (Stock is being held for medium term range for both capital appreciation as well as continuous dividend payments) – HOLD RECOMMENDED

LONG TERM (Stock is being held for long term range mainly for income from dividends pay outs) – HOLD RECOMMENDED