Goldcorp grows in Canada

VANCOUVER — It has been a tough year for Canadian gold producers, but Vancouver-based Goldcorp (G-T, GG-N) has side-stepped the writedowns and jurisdictional concerns plaguing many of its peers. Goldcorp’s conservative approach to growth has given it a strong balance sheet, and two near-term production assets in Eastern Canada that should highlight the company’s home-field advantage.

Goldcorp is aiming to add another 1.4 ­million oz. of production to its portfolio by the end of 2015, with 62% of that production attributed to growth at the company’s cornerstone Red Lake camp via its Cochenour expansion, as well as underground development at its Éléonore project in Quebec’s James Bay region.

With peers like Barrick Gold (ABX-T, ABX-N) and Kinross Gold (K-T, KGC-N) encountering socio-political problems at assets like Pascua-Lama in Chile and the Fruta del Norte in Ecuador, it looks like Goldcorp’s focus on measured and domestic growth will pay off. Canadian mines account for 38% of the company’s gold production, and with 850,000 oz. scheduled to be added from Éléonore and Cochenour by 2015, that number could rise.

“Our conservativism over the past years and how we financed our growth today provides us excellent flexibility in weathering lower gold prices,” president and CEO Charles Jeannes said during the first quarter. “That flexibility means that we are not going to undertake major reactions to a short-term price move. We need to run sensitivities as we always do and look at spending priorities, and determine where we would make reductions or deferrals in our spending programs in the event of a lower sustained price.”

Éléonore is the larger of the two projects and sits on the northeast corner of the Opinaca reservoir. The US$1.8-billion underground mine is scheduled to add 600,000 oz. gold annually for Goldcorp when it hits production in late 2014.

Éléonore’s Roberto gold deposit — which is comprised of sub-parallel, gold-bearing lenses hosted by polydeformed sedimentary rocks that are typically thinly bedded greywacke — hosts probable reserves of 12.5 million tonnes grading 7.6 grams gold per tonne for 3 million contained oz. gold. Goldcorp is chasing Roberto at depth with its recently completed Gaumond exploration shaft, and the company has budgeted US$650 million on Éléonore’s ­development in 2013.

Goldcorp sunk its production shaft at the site in mid-December. Its secondary exploration ramp exceeded 2,900 metres in length during the first quarter, which enabled mine development from the 650-metre level.

Work on the production shaft had reached 220 metres depth at the end of the first quarter, though Goldcorp is waiting on drill campaign results to determine its progress and overall capital spending at the production shaft sinking. The company had a US$350-million cost escalation at the project due to more permitting required related to water treatment, as well as general cost inflation.

Over the first three months of 2013 Goldcorp punched around 19,000 metres of diamond drilling at Éléonore’s upper-mine area, and six drills continue with definition and exploration campaigns, while drilling has also started up on the mine’s lower portion.

Cochenour is a smaller development — with a US$540-million price tag to match — but the project will tack on 250,000 oz. production at Goldcorp’s flagship Red Lake mine, which is expected to contribute 500,000 oz. gold to the company’s bottom line in 2013.

Goldcorp is completing a 5 km haulage drift to connect the Cochenour shaft with the Red Lake mine on the 5,100 level. The company reported the drift was 71% complete by March, with the project expected to hit first production in early 2015. Once complete, the drift will help Goldcorp transport ore from its Cochenour-Bruce Channel deposit to the Red Lake mine for processing at its mill facilities. Another benefit from the drift is that it will help the company test unexplored ground at depth in the heart of Red Lake.

The company bumped its cost forecast at Cochenour by around US$120 million during the first quarter when it discovered that the centre of the Bruce Channel orebody is lower than previously expected, which called for deepening the Cochenour shaft by 245 metres.

Goldcorp announced an unsecured senior note offering worth US$1.5 billion in mid-March, and the company reported US$2.1 billion in cash and equivalents, as well as US$2 billion in an undrawn debt facility, at the beginning of June.

Goldcorp has not been immune to falling gold prices, with its stock down 24%, or $8.74 since early January, en route to a $28.21-per-share close at press time.

The company has 812 million shares outstanding for a $23-billion market capitalization.