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Why Goldcorp’s plans changed for the Peñasquito mine

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Peñasquito mine

The Peñasquito mine is located in the northeastern portion of the state of Zacatecas in north-central Mexico. It’s Mexico’s largest open-pit mine. It consists of two open pits—Penasco and Chile Colorado. The mine contains gold, silver, lead, and zinc. It achieved its first commercial production in 2010. It was on schedule and on budget. Its estimated mine life is 13 years. It has reserves of 11.62 million ounces.

Penasquito

Exploration continues to expand the high-grade manto deposits beneath the Peñasquito pit. Results have shown significant potential for concurrent, high-grade production from mantos below the current pits later in the mine’s life.

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Growth potential

At Peñasquito, the pre-feasibility studies for the concentrate enrichment process project and the pyrite leach project are advancing. They’re expected to be completed in late 2014 and early 2015, respectively. Successful implementation of one or both of these projects could significantly improve the overall economics. It could add to Peñasquito’s reserves and resources. It could increase gold and silver recoveries, respectively.

Mine plan change

In 2013, Goldcorp initiated a mine plan change for the Peñasquito mine. The change involves high-grading the mine. This means that the high-grade portion of the ore will be mined first. This usually leads to a cost reduction due to less overburden mined. This has been done in addition to lower gold prices. In such a scenario, mining a lower-grade portion doesn’t provide a margin cushion. This will also lead to a decrease in Peñasquito’s reserves and mine life. Peñasquito’s mine life was reduced from 19 years to 13 years.

High grading of mines has also been done by other companies—including Barrick Gold (ABX) at the Goldstrike mine and Newmont Mining (NEM) at its various mines. This trend yields good returns in terms of lower costs and higher production in the short term. However, over the long term, the mine economics weaken. This hurts the longer-term prospects—assuming all other things remain the same.

The VanEck Vectors Gold Miners Index (GDX) invests in the stocks mentioned above. Investors can get exposure to spot gold by investing in the SPDR Gold Shares (GLD). GLD is a physical gold-backed ETF.

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