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Goldcorp takes impairment charge on its Cerro Negro project

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Project description

Goldcorp’s (GG) Cerro Negro project is a high-grade vein system located in the Province of Santa Cruz, Argentina. The land position includes 215 square kilometres with numerous discoveries of high-grade gold and silver veins. As of December 31, 2014, Cerro Negro contained 5.26 million ounces of proven and probable gold reserves, down from 5.74 million ounces reported December 31, 2013, due to higher cut-off grades resulting from higher costs.

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First production

Following first gold on July 25, 2014, commercial production at Cerro Negro was declared on January 1, 2015, at an initial capital cost of approximately $1.7 billion. Ore feed was introduced at the process plant on July 15, 2014, resulting in 2014 gold production of 152,100 ounces. The mill successfully operates for extended periods of time at the designed rate of 4,000 tons per day. Gold production is expected to be between 425,000 and 475,000 ounces in 2015.

Impairment

Due to restrictions on the importation of goods and services and limitations on the exchange of Argentine pesos into US dollars, coupled with the continuing inflationary environment in the country, the operations at Cerro Negro have been negatively impacted. As a result, through the company’s annual goodwill impairment testing, an after-tax asset impairment of $2,300 million was recognized in the fourth quarter of 2014. This amount was against the carrying value of Cerro Negro, and $975 million and $1,325 million of the amount were applied to goodwill and mining interests, respectively.

Barrick Gold (ABX) might also book an impairment on its Lumwana copper mine in Zambia due to a tax rate change by the government there.

Newmont Mining (NEM) is also optimizing its portfolio.

The VanEck Vectors Gold Miners ETF (GDX) invests in senior and intermediate gold producers. The SPDR Gold Trust (GLD) provides exposure to spot gold prices. Goldcorp is GDX’s top holding, making up 10.7% of the ETFs overall holdings.

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