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GAROFALO INTERVIEW 24 E&MJ; • APRIL 2016 www.e-mj.com The Goldcorp Reboot After posting a huge loss and reclassifying reserves, a new CEO charts a course with organic growth and a decentralized approach By Steve Fiscor, Editor-in-Chief Goldcorp's new CEO David Garofalo took the helm at the end of February, shortly after the gold mining company posted a $4.2 billion loss for 2015, revised its pro- duction guidance downward and reclassi- fed millions of reserve ounces as resourc- es. He was serving as president and CEO of HudBay Minerals when the Goldcorp board approached him. He presided over HudBay's emergence as a leading met- als producer. Before joining Hudbay, he served as a senior vice president, fnance, and CFO with Agnico-Eagle Mines from 1998 to 2010. So, he's familiar with the gold business. Making no excuses, Garofalo said he is pleased with the company he has inher- ited. "Goldcorp is a rock solid 3-million- ounce-per-year (oz/y) producer with low cash costs, mining gold in low political risk jurisdictions," Garofalo said. "It's got the best balance sheet in the space. What positively surprised me about the com- pany was the robust organic pipeline of projects. We have up to eight opportuni- ties to optimize existing operations. These projects have a relatively low capital in- tensity because they can be found within the shadow of existing headframes. We can leverage the existing infrastructure and the people we have in place, which means lead times are much shorter and the internal rate of return (IRR) is robust as well." Because the company has a strong balance sheet with signifcant free cash fow, it has the ability to comfortably fnance these projects while continuing to de-leverage its balance sheet, Garofalo explained. "We have some of the lowest leveraged levels in relative terms—the lowest in the space among the se- niors," he said. "We have further oppor- tunities to comfortably rebate that and fnance organic growth without going back to the market. That also affords compound returns. We will harvest and generate returns from the signifcant buildout undertaken in the last few years and now we are able to com- pound those returns in low capital-in- tensity, high-IRR propositions that we already own." At this time, growth through mergers and acquisitions is not as appealing to Goldcorp. "We have surveyed the land- scape of available opportunities," Garo- falo said. "Our best opportunities are the ones we already own. We're very selective geographically and geologically. We want to work in low political-risk jurisdictions and we want to stay focused on gold. Be- cause of our scale, we need 5-million-oz deposits to perpetuate our business and shovel-ready jobs of that scale are few and far between. They just don't exist in the jurisdictions where we want to operate." While it focuses internally, Goldcorp will cultivate the next generation of large- scale gold projects as it moves forward by placing seed capital with multiple juniors. That's a strategy that Garofalo pursued at HudBay and Agnico Eagle. He sees greenfeld exploration as the highest risk factor of the value creation equation for the mining business. During his ten- ure at HudBay, fve of the mines that they developed resulted from a portfolio of in- vestments where the company put capital to work with multiple juniors. Once a successful junior has de- risked a project signifcantly, Goldcorp will cut them in by marrying the assets with its strong balance sheet and mine construction and operations expertise. "Cultivating those 5-million-oz deposits will require a patient approach toward in- vestment," Garofalo said. "As an industry, we have no other choice because these projects do not exist." Comparing Goldcorp with its peers, over the last three years, the reserves for the top 10 producers have decreased 15% and production is projected to decline by 8%. "Flat is the new growth in our sec- tor," Garofalo said. "Having a fat produc- tion profle with the potential upside of an organic pipeline of opportunities, puts us in an excellent competitive position." A Signifcant Reset Seeing the direction they were heading, with gold prices languishing between $1,150/oz and $1,250/oz, the company re-evaluated its situation using a more David Garofalo, Goldcorp's new CEO.