Goldcorp falls on forecasted production reduction

A day after Goldcorp cut its 2012 production guidance the company saw its share price drop significantly.

In Toronto on July 11 Goldcorp shares approached its 52-week low of $32.52 as they fell $3.74 or 10% to $33.89 on 6.1 million shares traded.

The loss of production that motivated the sell-off is being blamed on operational problems at two of its mines: Red Lake in Ontario and Penasquito in Mexico.

Goldcorp now says gold production for the year will come in within a range of 2.35 to 2.45 million oz. Its previous guidance for the year was 2.6 million ounces.

Guidance for silver was also revised to the downside as now the company says it will turn out 30 to 31 million ounces of the metal this year rather than the 34 million ounces it previously was anticipating. Its copper forecast was unchanged at 110 million lbs.

As is generally the case with mines, lower production translates into higher costs since a great part of mining expenses are fixed causing overall costs to fall with increased production and rise with reduced production.

In the case of Goldcorp the company says the lower expected production means total cash costs will move up to the US$310 to US$340 per oz. range from the previous estimate of US$250 to $275 per oz. range.

Water, or more precisely a lack of it, is the company’s central problem at Penasquito. With a prolonged drought in the region making less water available than needed to operate at full capacity, Goldcorp had to reduce throughput at the mill. To deal with the issue it is aggressively drilling new wells while at the same time looking at ways to bolster the amount of water it can reclaim from its tailing facility.

The mine is now slated to produce 370,000 to 390,000 oz. of gold this year, compared with previous guidance of 425,000 oz.

As for Red Lake, which is Goldcorp’s biggest producing mine, production is expected to come in at 460,000 to 510,000 oz. down from the previous guidance of 650,000 oz.

Seismic activity is one of the chief culprits behind operational delays at the mine, which is located northwest of Dryden. The company was forced to cut-off access to the mine’s High Grade zone so that de-stressing cuts in the rock could be made. The work should increase output from the zone when mining resumes there.

Another cause for concern has been the inconsistency of grade found in the Footwall zone over the first half of the year. The situation, Goldcorp says, means it has to be conservative with regards to forecasting production during the second half of the year.