Goldcorp’s Penasquito yet to find its legs

Beset by a string of early production issues, Goldcorp (G-T, GG-N) is hurriedly working to ramp up to full production at its newest flagship mining asset, the Penasquito silver-gold-lead-zinc mine in Mexico’s Zacatecas State.

Acquired in 2006 as part of an $8-billion merger with Glamis Gold, which had itself only acquired the property five months earlier in a US$1.2-billion takeover of Western Silver, Penasquito is seen as the cornerstone of Goldcorp’s growth plans. Currently the largest open-pit mine in Mexico, at full capacity Penasquito is designed to produce 500,000 oz. gold, 28 million oz. silver, 450 million lbs. zinc and 200 million lbs. lead each year over an estimated 23-year mine life.

Goldcorp began construction of the $1.6-billion mine in 2007 with a view toward initial oxide production in 2008 and start-up of the milling circuit in 2009. Though heap-leach operations of oxide resources led to the first gold pour in mid-2008,  minor delays in construction pushed back commercial production to September 2010 from January 2010, with the project remaining largely on budget.

Since then, the company has been hard pressed to ramp up the mine to full production, largely because of problems with the high-pressure grinding roll portion of the mill circuit. In the most recent quarter ended June 30 2011, gold production increased slightly to 58,400 oz. from the 57,600 oz. produced in the first quarter. Goldcorp subsequently cut its 2011 gold production forecasts for the mine to 250,000 oz. from 350,000 oz., though output will still have to increase slightly from the current rate of roughly 233,000 oz. gold per year to reach the revised target.

Oxide gold mined by heap leaching at Penasquito totalled 15,300 oz. in the second quarter, a 10% decrease from the previous quarter. Goldcorp says the reduction was partly anticipated in the mine plan due to reaching a transition zone of mineralization, though unexpected restricted cyanide deliveries were experienced due to flooding at DuPont’s manufacturing facility in Tennessee.

Second-quarter gold production from sulphide ore rose to 43,100 oz., a 6% increase. Despite ore grades and metal recoveries increasing, the quantity of ore milled in the second quarter decreased by 7% as a result of two main commissioning problems. First, the primary SAG mill grinding did not generate as many pebbles as originally forecast in preconstruction tests, limiting feed for the high-pressure grinding circuit. Second, the rate at which the tailings dam wall was rising needed to be increased in order to hold rising tailings levels and provide enough return water for processing.

This then led to a 12% decrease in total material mined at Penasquito in the second quarter as extra waste rock needed to be hauled from stockpiles to the tailings storage area to supplement the dam wall construction material. The company also processed more reclaimed ore from stockpiles than usual, furthering the decline in total material mined.

Further compounding matters, Goldcorp expects restricted cyanide deliveries due to supplier production issues in the second half of 2011, which will likely lead to delayed oxide gold production from the mine’s  heap-leach operation.

To help solve the first set of problems, Goldcorp is now hauling mine waste rock directly to the tailings storage area, while adding additional water supplies to eliminate any current and future shortfalls caused by tailings dam wall issues. It also installed extra power generating facilities in the regular grinding and high-pressure grinding circuits, so that the pebble generation issue can be circumvented by providing supplemental feed which bypasses the SAG mills. A $30-million expansion project has since commenced to bring the supplemental ore feed system into operation by year-end.

The company says stabilizing operations at the 30,000-tonne-per-day high-pressure grinding roll circuit will be the final step in bringing the plant’s throughput to its design capacity. So far, the plant’s two 50,000-tonne-per-day sulphide processing lines have performed as expected, with full processing capacity of 130,000 tonnes per day forecast to be reached toward the end of first-quarter 2012.

As stated by Chuck Jeannes, Goldcorp’s president and CEO, in a July 27 press release, “We expect to resolve [these] issues by the end of 2011 and Penasquito production in 2012 and beyond is not expected to be impacted.”

Nevertheless, cash costs at the mine – which are exceptionally low for even Goldcorp, the industry’s lowest-cost senior gold producer – rose sharply during the second quarter of 2011. They rose to negative $801 per oz. of gold produced net of byproduct credits, a 46% rise over first-quarter cash costs of negative $1,488 per oz. gold produced net of byproduct credits. Goldcorp blamed the rise on the operational issues noted above, as well as higher employee costs associated with annual labour payments, lower byproduct credits, increased blasting costs and a stronger Mexican peso.

Silver production rose slightly to 4.6 million oz. from 4.37 million oz., while lead and zinc production similarly increased slightly to 38.5 million lbs. from 36.5 million lbs. and to 66.5 million lbs. from 55.6 million lbs., respectively.