Please ensure Javascript is enabled for purposes of website accessibility
Free Article Join Over 1 Million Premium Members And Get More In-Depth Stock Guidance and Research

Even the Masters of Gold Face Challenges

By Christopher Barker - Updated Apr 7, 2017 at 3:00PM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Top-notch miner Goldcorp joins the slew of miners facing operational setbacks.

The process of mining minuscule gold particles out of tons of solid rock presents its fair share of challenges even when everything goes smoothly. So when every miner in turn faces one or more of those inevitable unexpected setbacks, sometimes you just have to chalk it up to the risks of the trade. As I've quipped before: If mining were easy, they'd call it "scooping".

As investors in mining stocks, that's where a long-term-investment horizon becomes critical to wait out the occasional bump in the road. Goldcorp (NYSE: GG) shares dipped violently last week to a fresh 52-week low after the major producer revealed setbacks at two of its key operations: the famous Red Lake mine in Ontario upon which the company's legendary success was built, and the world-class Penasquito mine in Mexico.

At Red Lake, recent seismic activity has slowed efforts to perform "de-stressing" cuts in portions of the underground mine where pressure needs to be relieved to ensure a safe work environment. The delay in completing those maintenance operations means production in the mine's High Grade Zone has been hampered. Combined with an encounter with "inconsistent mineralization" in the mine's Footwall Zone, these setbacks forced Goldcorp to reduce 2012 production guidance at Red Lake by roughly 25% to between 460,000 and 510,000 ounces of gold.

In the aftermath of Agnico-Eagle Mines' (NYSE: AEM) rough experience at its Goldex operation, where portions of that mine's hanging wall grew unstable, some investors were likely spooked by the following statement from Goldcorp this week: "Over the balance of 2012, the Company will evaluate the impact of these conditions on Red Lake's long-term production profile." Markets detest uncertainty, and a statement like this leaves us all hoping any changes to the long-term outlook at Red Lake will not be severe.

Goldcorp's troubles at Penasquito were weather-related, as portions of central Mexico are experiencing drought conditions of late. Mill throughput suffered as a result of inadequate water supply during June, and the shortage is expected to continue affecting the operation during the second half. Small-cap silver miner Great Panther Silver (NYSE: GPL) noted drought conditions at its Topia plant likewise affecting mill throughput.

Goldcorp lowered its 2012 production forecast at Penasquito by about 11% to between 370,000 and 390,000 ounces. That shortfall will impact Penasquito royalty holder Royal Gold (Nasdaq: RGLD), and particularly silver stream holder Silver Wheaton (NYSE: SLW). Silver Wheaton had anticipated 7 million ounces of silver from Penasquito for its 25% share of 2012 production, but based upon Goldcorp's adjusted outlook it looks as though they'll receive 6 million ounces or less.

Fortunately, Goldcorp possesses an impressive portfolio of robust gold operations paired with an exciting growth pipeline in the works to help absorb these recent setbacks. As a result, Goldcorp still expects consolidated gold production for 2012 to exceed 2.35 million ounces of gold. And while reduced production volume will push costs upward for the time being, the miner still will remain near the top of the industry with a low by-product cash cost between $310 and $340 per ounce. Although my near-term outlook for Goldcorp's stock performance has been scaled back accordingly, my long-term outlook remains decidedly bullish. Since I still believe Goldcorp is one of the finest specimens one can place within a precious metals investment portfolio, I will not alter my long-term bullish CAPScall on the stock that I've had in place since 2008. To stay tuned for more coverage on Goldcorp and the full suite of precious metal miners, please bookmark my article list or follow me on Twitter.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis – even one of our own – helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

Goldcorp Inc. Stock Quote
Goldcorp Inc.
GG
Wheaton Precious Metals Corp. Stock Quote
Wheaton Precious Metals Corp.
WPM
$39.66 (-1.05%) $0.42
Royal Gold, Inc. Stock Quote
Royal Gold, Inc.
RGLD
$98.59 (-0.31%) $0.31
Agnico Eagle Mines Limited Stock Quote
Agnico Eagle Mines Limited
AEM
$47.75 (-0.17%) $0.08

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning service.

Stock Advisor Returns
640%
 
S&P 500 Returns
139%

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 12/03/2021.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Our Most Popular Articles

Premium Investing Services

Invest better with the Motley Fool. Get stock recommendations, portfolio guidance, and more from the Motley Fool's premium services.