Goldcorps Operations Suggest Substantial Growth in 2014

Source: Thinkstock

Source: Thinkstock

Goldcorp (NYSE:GG) is one of the world’s fastest growing senior gold producers. I am of the opinion that gold and silver equities are a good buy right now, particularly for the long-term, as I see gold prices climbing higher due to inflationary pressures rising. Those holding gold, silver, and stocks in the sector as insurance against inflation will be rewarded in time. I recently covered the financial aspects of Goldcorp, detailing its low cost production and raised output. The purpose of the present article is to provide an operational update on the company during the most recent quarter and expectations moving forward at the company’s Central American, Canadian, Mexican, and South American projects.

The first property to update you on is in Central America at the Pueblo Viejo mine. At Pueblo Viejo, first quarter gold production totaled 106,200 ounces at an all-in sustaining cost of $628 per ounce. Production increased 66 percent from the same prior year period as a result of major modifications to the autoclave facility in the second half of 2013, as the mine worked to achieve design capacity and all four autoclaves came online. Ramp-up is expected to continue during the first half of 2014 to full capacity following completion of the modifications to the lime circuit. Gold production for 2014 is expected to be between 405,000 and 420,000 ounces. This mine has promising reserves for the company moving forward.

The second and third properties are located in Canada at Red Lake and Porcupine mine sites in Ontario. At Red Lake in Ontario, gold production for the first quarter was 95,000 ounces at an all-in sustaining cost of $954 per ounce. Gold production was affected by planned lower heading availability due to scheduled de-stress activities which are expected to be completed in the third quarter of 2014. Exploration drilling targeting the upper portion of High Grade Zone Main structure returned high grades over substantial widths. Drilling continues to extend the zone to higher elevations. At Porcupine in Ontario, gold production in the first quarter totaled 66,500 ounces at an all-in sustaining cost of $945 per ounce. The Hoyle Deep Project continued to sink the #2 Winze shaft to access both the deep extensions of the current and newly discovered zones and to enhance operational efficiencies throughout the Hoyle Pond mine. At the Hollinger project, overburden stripping commenced during the first quarter of 2014. Once these mines ramp up, production could double from current levels.

At the Cochenour project in the Red Lake district, the haulage drift connecting the Bruce Channel deposit to the Red Lake complex advanced to 90 percent completion. During the first quarter of 2014, the Cochenour shaft reached its final bottom depth of 1,116 meters. A ramp of 1,175 meters is being developed to continue the decline down to the 4,000 foot level. The Cochenour-Red Lake integration team is focused on geotechnical assessments, backfill and material handling studies as well as infrastructure rationalization and placement. Exploration continues with four drills on site, completing 9,337 meters in the first quarter 2014 to further define the ore deposit. Preliminary results have been consistent with the company’s expectations.

Further, Éléonore in Quebec remains on track for first gold in late 2014 and for commercial production during the first quarter of 2015. Production drilling commenced during the quarter following stope development on levels 440m, 410m and 380m. The exploration ramp excavation reached 4,686 meters at the end of the first quarter, corresponding to a depth of 725 meters below surface and was connected with the main 650m level. The production shaft reached a depth of 735 meters. The ore stockpile on surface now contains 25,104 tons at an average grade of 3.9 grams of gold per ton.

A total of 19,575 meters of underground diamond drilling was completed in the first quarter of 2014. Exploration drilling targeted the center of the Lower Mine and the northern portion of the ore body with better-than-expected results achieved in the south block and main shoot of the Lower mine. The focus of drilling in 2014 remains on the conversion of resources to reserves.

Turning to Mexico at the Peñasquito mine, production totaled 129,800 gold ounces at a record low all-in sustaining cost of $31 per ounce. Grades continued to increase over the prior quarter as mining continued in a higher-grade portion of the deposit. Lower all-in sustaining costs were driven by continued success of the Operating for Excellence program and higher by-product credits. The Northern Well Field project is expected to begin construction by mid-year 2014 with completion now expected around mid-year 2015, approximately six months later than planned, due to land access and permitting challenges. Contingency plans have been developed for fresh water production to ensure plant production continues as planned and guidance for 2014 remains unchanged at between 530,000 and 560,000 ounces.The exploration drilling program at Peñasquito continues to define the intersection of the copper-gold sulphide rich skarn deposit located below and adjacent to the diatreme ore body. Current exploration activities continue to focus on in-fill and extension of the higher grade portion of the skarn deposit.

Also in Mexico, gold production at Los Filos was 80,000 ounces in the first quarter at an all-in sustaining cost of $805 per ounce. The construction of the next phase of the heap leach pad, including additional contingency solution storage capacity, commenced during the fourth quarter of 2013 and is expected to be completed late in the second quarter of 2014. Operations at the Los Filos mine were suspended on April 1, 2014, following the failure to reach agreement with the Carrizalillo Ejido on terms to renew the occupancy agreement that expired on March 31, 2014. Negotiations with Ejido authorities on a new occupancy agreement with sustainable terms continue and have been ongoing for several months and the Company believes that ultimately an agreement can be reached. The suspension has the potential to affect the mine’s 2014 production of between 330,000 and 345,000 gold ounces.

I should also point out that at the Camino Rojo project near Peñasquito in Mexico, positive exploration and concept study results continue to support the potential for it to become Goldcorp’s next major growth project. The deposit remains open at depth and along strike, and exploration in 2014 will focus on the upgrade and conversion of inferred resources. The Company expects to commence a pre-feasibility study in the third quarter of 2014.

Finally The Cerro Negro project in Argentina continued to advance towards first gold production around mid-year and commercial production in the fourth quarter of 2014. Engineering, Procurement and Construction Management (EPCM) activities at Cerro Negro are well advanced with detailed engineering complete and total EPCM progress at approximately 84 percent. During the quarter the high voltage power line and substation advanced to 94 percent completion, with an expected completion date of mid-May and approval expected by Transpa, the Argentinean power transportation authority, by the end of May 2014.

So, the company continues to press along nicely. It is ramping up production at several sites and exploration projects are advancing in its drilling programs. The company is anticipating that 2014 and into 2015 will be years of substantial growth. In just two years time, production could increase 25 to 50 percent. If the price of gold and silver can move higher, it will drive Goldcorp shares substantially higher. Until then, investors are being paid a 2.5 percent dividend yield to wait for the turnaround. I reiterate my buy recommendation.

Disclosure: Christopher F. Davis holds no position in Goldcorp and has no plans to initiate a position in the next 72 hours. He has a buy rating on the stock and a $29 price target.

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