Goldcorp entering ‘harvest mode,’ CEO Garofalo says

Goldcorp (TSX: G; NYSE: GG) has outlined an ambitious five-year growth plan, targeting a 20% increase in both gold reserves and annual production, plus a 20% reduction in all-in sustaining costs, after spending 2016 restructuring its business, strengthening its management team and selling non-core assets.

“It has been a busy year as we transition to harvest mode. But we now have a structure and people in place to increase the net asset value (NAV) per share to drive long-term shareholder value,” David Garofalo, Goldcorp’s president and CEO, said on a recent conference call.

“For 2017, our production is projected to be 2.5 million oz. at an all-in sustaining cost (AISC) of US$850 per oz., and expected to grow to 3 million oz. at a US$700 per oz. AISC within five years,” he added. 

The improvement in annual output should come from four of Goldcorp’s seven gold mines, including the ramp-up to nameplate capacity at the Cerro Negro mine in Argentina and the Éléonore mine in Quebec. Both achieved commercial production in early 2015 and last year produced 637,000 oz. gold, or 22% of Goldcorp’s 2016 output of 2.9 million ounces.

In Mexico, improved grades at the Penasquito mine and the new pyrite leach project should deliver higher production. As part of the pyrite leach project, the company intends to finish building a carbon pre-flotation facility in 2018 to help process higher carbon content.

In Canada, the material-handling project at the Musselwhite mine in Ontario — which involves completing an underground winze in 2019 — should trim the cost of trucking and mining, while boosting production.

Goldcorp expects to bring two gold mines online within the next five years. It is targeting first production at the Borden project in Ontario in 2019 and at the Coffee project in the Yukon at the end of 2020, or in early 2021. The miner acquired Coffee via a $520-million takeover of junior Kaminak Gold last July.

The growth plan excludes potential production from four of its other pipeline projects. “While we are optimistic for the potential of Cochenour, HG Young, Dome Century and NuevaUnion to contribute meaningfully to our production and NAV growth, we have excluded them from our current projections until we make an investment case for each project,” Todd White, Goldcorp’s new executive vice-president and chief operations officer, said on the call. 

Prefeasibility studies are underway at both the NuevaUnion copper-gold-molybdenum project, a fifty-fifty joint venture with Teck Resources (TSX: TECK.B; NYSE: TECK) in Chile, and the Ontario-based Dome Century project. Goldcorp also intends to begin prefeasibility studies on the Cochenour and HG Young growth projects in the Red Lake camp this year.

Goldcorp’s Cerro Negro gold mine in southern Argentina’s Santa Cruz province. Credit: Goldcorp.

In line with the company’s efforts to reinvest returns in organic opportunities, Goldcorp committed over US$1 billion of growth capital in 2016. The capital will support the estimated 20% growth in production over the next five years and a 20% improvement in AISCs.

Growth capital for 2016 included expenses on the Coffee project after its acquisition, US$420 million on Penasquito’s pyrite leach project and US$90 million on Musselwhite’s material-handling project. Both projects at Penasquito and Musselwhite should increase production starting in 2019.

Goldcorp’s annual gold production should climb from 2.5 million oz. in 2017 and 2018 to 2.7 million in 2019, and 3 million oz. in 2020 and 2021.

Meanwhile, Goldcorp forecasts AISCs will decline US$50 per oz. each year during the next five years. As a result, anticipated costs should drop from US$850 per oz. this year to US$700 per oz. in 2021.

As part of the strategy to lower costs and improve productivity, Goldcorp launched a company-wide savings program in 2016, with the goal of reaching US$250 million in annual savings by 2018.

On the exploration front, Goldcorp anticipates gold reserves expanding 20% from 41.8 million oz. in 2016 to 50 million oz. in 2021. The growth should come from converting existing resources at the Penasquito, Cerro Negro and Pueblo Viejo mines, as well as the Dome Century project. Goldcorp owns 40% of Pueblo Viejo, while Barrick Gold (TSX: ABX; NYSE: ABX) holds the rest.

Goldcorp has budgeted US$100 million on exploration this year.

The stock closed Feb. 17 at $22.76, up 20% year-to-date.