Goldcorp nails 2013 guidance, predicts falling cash costs

VANCOUVER — Prominent Canadian gold miner Goldcorp (TSX: G; NYSE: GG) has proven to be more resilient in the face of falling precious metal prices than many of its peers. And if the company’s production guidance for 2014 is any indication, it will be a positive example of how to handle growth while managing lower operating costs per ounce.

On Jan. 8 Goldcorp released its year-end production report, and although the company cut its mid-term growth targets, it still predicts a 50% production increase over the next two years at competitive cash costs.

Goldcorp reported record gold production during the fourth quarter, with 767,700 oz. gold at all-in sustaining cash costs of between US$885 and US$1,065 per oz. The strong quarter contributed to an 11% year-on-year jump in annual production, with the company cranking out around 2.67 million oz. in 2013. On a by-product and co-product basis, costs are expected to average US$560 per oz. and US$710 per oz. over the past four quarters.

President and CEO Chuck Jeannes noted in the report that “every Goldcorp-operated mine either met or exceeded [2013 guidance], with the exception of Los Filos, where record floods [in mid-2013] temporarily halted production.” The company continues to be anchored by strong production from its Penasquito mine in Mexico and Red Lake operation in Ontario, which jointly accounted for 897,000 oz., or 33% of the Goldcorp’s overall production.

The company estimates it will produce between 3 million oz. and 3.15 million oz. in 2014. Higher production will be fuelled by increasing grades in the Penasquito pit, as well as an ongoing ramp-up at the Pueblo Viejo joint venture in the Dominican Republic, where Goldcorp holds a 40% stake alongside operator Barrick Gold (TSX: ABX; NYSE: ABX).

Goldcorp’s share of annual gold production at Pueblo Viejo is predicted to jump as much as 77% year-on-year to between 405,000 oz. and 420,000 oz., while high grades at Penasquito will boost production by up to 72% to between 530,000 oz. and 560,000 oz.

The company will see two development projects come online during 2014, namely its Cerro Negro mine in Argentina and Éléonore mine in Quebec.

The timing of the ramp-up at Cerro Negro and Éléonore should result in significantly higher gold production in the second half of 2014. Cerro Negro is expected to contribute between 130,000 and 180,000 oz. next year, while Éléonore is slated to hit a production target in the fourth quarter and chip in between 40,000 and 60,000 oz.

Perhaps more importantly, Goldcorp’s cost-reduction strategies appear to be paying dividends. The company expects its all-in sustaining costs to fall to between US$950 to US$1,000 per oz. next year. The superior grades at Penasquito — projected to be the company’s largest-production asset — will definitely help, though Goldcorp notes it has redesigned its mine plan at the site. Penasquito’s projected mine life has dropped from 19 years to 13 years, with the company’s final two phases of pit development eliminated due to too-low grades.

The major shift for Goldcorp involves its extended growth forecast. At the beginning of 2013 the company predicted it would achieve a 70% boost in production to 4.2 million oz. gold over the next five years, but that has been notably pared back in its recent releases. Not counting any successful bid for Osisko Mining, Goldcorp expects production to peak in 2016 at between 3.7 million and 4 million oz., before declining back down to the 3.5 million to 3.8 million oz. range for 2017 and 2018.

BMO Capital Markets analyst David Haughton — who has an “outperform” ranking on Goldcorp, along with a US$37-per-share price target — noted in a Jan. 8 research note that both the company’s fourth-quarter operating results and 2014 guidance were above research forecasts.

BMO Research had predicted fourth-quarter production of 720,000 oz. gold at cash costs of US$674 per oz., and expected Goldcorp’s 2014 guidance to clock in at 2.85 million oz. Haughton says, however, that the company’s US$2.1-billion capital expenditure guidance for the coming year was higher than expected.

Goldcorp reported US$620 million to end 2013, as well as an undrawn US$2-billion credit facility. Major project expenditures in 2014 include US$600 million at Cerro Negro, US$570 million at Éléonore, US$125 million at Red Lake’s Cochenour Extension and US$85 million at the company’s earlier-stage Camino Rojo project in Mexico.

Goldcorp shares have traded within a 52-week range of $21.87 and $38.77, and closed up 2% following the 2013 production results, en route to a $24.31-per-share close at press time. Goldcorp has 812 shares outstanding for a $19.8-billion market capitalization. On Jan. 6, the company declared the first monthly dividend payment in 2014 of 5¢ per share.