Goldcorp falls short of production targets, again

Before Goldcorp (G-T, GG-N) began commercial production at its expanded Red Lake gold mine on Jan. 1, 2001, the company was a 100,000- oz.-a-year mid-tier gold producer struggling to become a senior gold miner. But by the end of the year, Red Lake had transformed the company into a 600,000-oz.-gold-per-year tour de force, marking the beginning of a six-year, acquisition-led growth cycle that saw Goldcorp’s 2006 gold production rise to 2.3 million oz. gold – a remarkable 2,200% increase.

From there, however, Goldcorp has made little ground upping its gold output. Even with several new mines having come on-stream since 2006, the company poured “just” 2.5 million oz. gold in 2011, a fraction higher than its 2006 output, though importantly operating costs have remained competitive. For the first time in years, Goldcorp produced less gold in 2011 than it did in the previous year, having poured 2.5 million oz. gold in 2010.

Worse still, 2012 is shaping up to be similar. In its year-end review on Jan. 9, Goldcorp says gold production this year should total 2.6 million oz. gold. Goldcorp has nevertheless met just one production target set since 2005 and has missed five: at the beginning of 2011 it had hoped for 2.7 million oz., with actual production at 2.51 million; for 2010 it predicted 2.6 million oz., actual production 2.52 million; in 2009 it predicted 2.3 million oz., actual production 2.4 million; in 2008 it predicted 2.6 million oz., actual production 2.3 million; in 2007 it predicted 2.8 million oz., actual production 2.29 million; and in 2006 it hoped for 2 million oz., actual production 1.69 million.

The year-end review also sets out an ambitious five-year outlook for gold production growth, with five new mines set to operate by 2016. The review was titled “Goldcorp Meets 2011 Forecast Gold Production and Cash Costs: Five-Year Gold Production Growth Profile Increases to 70%,” despite missing its original target set in January the year before.

New projects contributing to production growth include: Pueblo Viejo, mid-2012; Cerro Negro, second-half 2013; Cochenour, late 2014; Camino Rojo, 2014; Eleonore, late 2014; and El Morro, 2017. With these, Goldcorp hopes to raise production to 4.2 million oz. gold in 2016. Although the company did not begin reporting five-year forecasts until 2007, that year’s forecast suggests they too should not be heavily relied upon. In 2007, Goldcorp predicted gold production in 2012 would be 3.45 million oz., or 850,000 oz. short of the target for 2012 set this year.

Still, several of Goldcorp’s biggest competitors have suffered a similar lack of gold production growth. Barrick Gold (abx-t, abx-n) produced 8.64 million oz. gold in 2006 and expects to pour between 7.6 million to 8 million oz. gold in 2011. Likewise, Newmont Mining (NEM-N, NMC-T) sold 5.9 million attributable oz. gold in 2006 and expects to have produced between 5.1 million to 5.3 million attributable oz. gold in 2011.

Declining reserve grades, escalating costs and a dearth of new world-class discoveries are challenges the entire industry faces. Record-high gold prices have helped lift shares of senior gold miners to new heights over the past five years, but unless the trend continues, upsides will be limited to increases in production, which is a worrying sign for the majors – and one which has perhaps helped cap share prices this past year, despite unprecedented cash flow.