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China created quite a buzz in the gold market a couple of weeks ago by revealing a six-year buying spree that brought its gold reserves to 1,054 tons. While that sounds like a lot of gold, and indeed it's enough to place China's stash within the top five sovereign gold reserves, Goldcorp (NYSE: GG ) has more.
With more than 46 million ounces of gold in reserves, Goldcorp has more unrefined bullion buried beneath the surface than even the much-ballyhooed SPDR Gold Shares (NYSE: GLD ) exchange-traded fund reports holding. If investors in Agnico-Eagle Mines (NYSE: AEM ) can take project delays in stride because they view reserves much like an underground vault, then the holdings of Goldcorp and other major miners like Newmont Mining (NYSE: NEM ) can be better understood compared with the list of official gold reserves. By comparison, the world's largest gold miner, Barrick Gold (NYSE: ABX ) , holds reserves (3,875 tons) that would be No. 2 on this list, behind only the United States. Of course, there are significant logistical distinctions between bullion bars and unmined ores, but I still consider the comparison an informative one.
Back to earnings
Goldcorp delivered solid first-quarter earnings of $291 million, an increase of 27% over the prior-year period, although that includes a $116 million boost from favorable foreign currency conversions that might not be a factor once the U.S. dollar resumes its slide. Gold production rose 18% to 616,500 ounces, with a byproduct cash cost of just $288 per ounce. The average realized price of gold during the period was $912, more than three times Goldcorp's cost, and yielded a healthy gross operating margin of 38% after depreciation and depletion.
Looking forward, Goldcorp's expected 50% production growth over five years will be driven in very large part by core development priorities like Red Lake in Ontario, the Penasquito mine in Mexico, and Pueblo Viejo in the Dominican Republic. Goldcorp is streamlining another new development at Red Lake called Cochenour, and at Penasquito, commercial production is expected by January 2010. In addition to shareholders, Penasquito beneficiaries like Silver Wheaton (NYSE: SLW ) and Royal Gold (Nasdaq: RGLD ) may have added cause to celebrate on New Year's Eve.
With more gold in reserve than China's central bank, far less debt on the books than most of its rivals (just $95 million), one of the lowest cost profiles in the sector, significant potential discoveries from ongoing exploration, and one of the world's most exciting new mines nearing production, I view Goldcorp as top-rate proxy for bullion in a vault.