Announcing the sale of both its Cerro Blanco project and Los Filos mine two weeks ago, Goldcorp (GG) has hit the ground running in 2017. How much more does the company have up its sleeve for the rest of the year? Luckily for us, management provided some insight during its recent Investor Day event.
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Reducing the cost of doing business
Although it hasn't reported its fiscal 2016 earnings yet, management affirmed its guidance -- during the third-quarter earnings report -- for all-in sustaining costs (AISC) in fiscal 2016 to total between $850 and $925 per gold ounce. Should actual AISC come in in the middle of this range, it would be a nominal improvement over the $893 per gold ounce that the company reported in fiscal 2015. Nonetheless, it would be an improvement -- something that the company has been consistently achieving. In fiscal 2013, for example, it reported AISC of $1,008 per gold ounce and has been lowering it each subsequent year.
In the year to come, management is forecasting the company will report AISC of $850 plus or minus 5% per gold ounce -- a range of $808 to $893. The reduction will be driven, in part, by the Pueblo Viejo mine, which is forecast to produce 415,000 ounces of gold in fiscal 2017 -- the most productive mine in Goldcorp's portfolio -- at an AISC of $530 per gold ounce. Through the first nine months of fiscal 2016, the mine has reported AISC of $488 per gold ounce.
Extending its outlook beyond 2017, management revealed in its Investor Day presentation that it has the long-term goal of reducing its AISC by about 20%, to $700 per gold ounce by 2021.
Projecting progress on projects
In an attempt to increase net asset value per share by achieving economies of scale, management is committed to recognizing gold production from six to eight large-scale camps by 2021. This will, in part, be accomplished by expanding the company's portfolio. To this end, of the $1.3 billion in capital expenditures (capex) that Goldcorp is forecasting for 2017, $600 million will be used on advancing projects in the company's pipeline. Specifically, investors can expect development activities to continue through 2017 at two of the projects that figure prominently into the vision of a more robust portfolio: Coffee and Borden.
Located about 100 miles west of the Porcupine mine in Ontario, Borden recently received advanced exploration permits. Pending positive results of a pre-feasibility study, engineering activities are expected to continue through 2017, leading up to mine construction in 2018 and commercial gold production in Q3 2019. Illustrating the potential value of Borden, management estimates that it will commit 12% -- the most of any expansionary project -- of the $600 million to Borden.
While it is pursuing development of Borden in Ontario, the company will also be brewing excitement at its Coffee project in Yukon, Canada. Engaged in initial studies to support the permitting process, Goldcorp foresees gold production commencing in Q4 2020. Accounting for only 5% of the $600 million in expansion capex dollars, Coffee, according to management, has the potential to be a new large-scale camp.
Bucking the trends
During its Investor Day presentation, Goldcorp's management highlighted two trends: a decrease in gold reserves over the past three years and a projected decrease in gold production over the next five years. Unlike its peers, however, Goldcorp foresees increasing both its gold reserves and gold production in the next five years -- something it will begin to do in fiscal 2017.
Image source: Goldcorp
According to management, Goldcorp had 42.3 million ounces of gold reserves as of June 2016. From this point, the company expects to grow its reserves by about 20%, to 50 million ounces in 2021. Though the company didn't provide guidance for the size of the reserves in 2017, investors can expect to see plenty of activity at the Penasquito mine in Mexico as a means of achieving this target.
Management estimates that of the $700 million in capex spending for sustaining projects, Penasquito will account for a massive 41%. The next closest project to Penasquito is the Cerro Negro mine, receiving 13% of capex dollars. Representing a total cost of about $420 million, the Pyrite Leach Project is expected to produce its first gold in Q1 2019. Management expects the project to add about 100,000 to 140,000 in annual gold production to the Penasquito mine. For some context, Penasquito is forecast to produce 410,000 ounces of gold in fiscal 2017.
In terms of total gold production, management is forecasting approximately 2.5 million ounces in fiscal 2017. From this point, management expects production to rise about 20% by 2021, when gold production is forecast to total 3 million ounces. Besides the aforementioned Borden, Coffee, and Pyrite Leach Project, the company identifies increased production at numerous other sites as contributing factors. For example, the Eleonore mine produced 274,000 gold ounces in fiscal 2016, and management is forecasting its production to increase to 315,000 ounces in fiscal 2017. The Cerro Negro mine produced 363,000 gold ounces in fiscal 2016, but this is expected to rise to 410,000 ounces in fiscal 2017.
The takeaway
In suggesting that Goldcorp will be achieving something that few peers are doing -- increasing gold reserves and production -- management is clearly optimistic about its future. Now that it has set the lofty goals, though, all it has to do is execute its strategy. Of course, that's a lot easier said than done. Fortunately for us, management has provided plenty of figures that we can use to gauge its progress.
