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A stock in a sweet spot like this might come along just once in a blue moon.
Although we just had a blue moon last month, Goldcorp's (NYSE: GG ) position of relative strength among major gold miners has been years in the making, and recent strategic moves to build out the company's production pipeline lay the foundation for a lasting competitive advantage over even traditional gold mining titans like Barrick Gold (NYSE: ABX ) and Newmont Mining (NYSE: NEM ) .
In this respect, the Barricks of the world could become a victim of their own enormous size. In a world where truly massive gold deposits -- like those in South Africa that dominated global production for decades -- are increasingly scarce, top tier miners face a daunting (and perhaps untenable) challenge in their quest to replace production with new greenfield discoveries or through acquisitions. As we have seen, competition for gold asset purchases is heating up, and in time that will tend to drive acquisition costs sharply higher.
Goldcorp issued operating results for 2009 this week along with production and cost estimates through 2013. The numbers are rather awe-inspiring. The company outpaced its own production guidance by 100,000 ounces in 2009, and estimates a by-product cash cost $295 per ounce of gold produced. Although Goldcorp cannot compete with mid-tier producer Yamana Gold's (NYSE: AUY ) remarkable 2009 comparable cost of just $190 per ounce from continuing operations, Goldcorp remains the lowest-cost producer among its major mining peers, and a veritable cash flow machine the way gold prices are shaping up. Accordingly, Goldcorp estimates mammoth 2010 cash flow of $1 billion (cue the Dr. Evil voice-over).
To conquer the gold mining world, Goldcorp anticipates 58% growth in production volume from 2.4 million ounces in 2009 to 3.8 million ounces in 2014, with every year in between yielding a solid incremental rise. Production costs for 2010 are forecast to rise to $350 per ounce.
Meanwhile, the company is investing $130 million in exploration for 2010. Making the most of sophisticated underground equipment now offered by the likes of Bucyrus (Nasdaq: BUCY ) and Joy Global (Nasdaq: JOYG ) , Goldcorp's proposed 5-kilometer underground tram connecting the Cochenour deposit to existing facilities at Red Lake will provide an exciting bonus. The tram will open underground access to exploration along a highly prospective area of one of the world's most impressive gold-bearing camps.
With a powerful combination of voluminous cash flow and available liquidity, enormous potential to expand reserves through exploration of existing properties, a proven track record of developing low-cost mining operations with innovative engineering solutions, and a resounding strategic victory over its rivals through recent asset purchases, Goldcorp has all the right ingredients in place for enduring outperformance of its major rivals. Fools appear to agree, as Goldcorp trounced competitors like Kinross Gold (NYSE: KGC ) for the title of top major gold producer (garnering 69% of votes in a recent Motley Poll).
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