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How Could Project Corridor Impact Goldcorp’s Production Profile?

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Sep. 11 2015, Updated 8:07 a.m. ET

Reserve replacement

While mines have finite lives, companies operating them don’t. To stay in the business, miners either have to find new mines to replace depleting mines or acquire mines from junior miners (GDXJ) engaged mainly in exploration. If Project Corridor goes as planned, there could be a significant upside to Goldcorp’s production.

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Gold production

In 2Q15, Goldcorp (GG) achieved record gold production of 908,000 ounces. This is a solid 40% growth year-over-year (or YoY) and a 25% growth quarter-over-quarter. The major contributor to Goldcorp’s production growth was the Peñasquito mine in Mexico, which achieved a record 298,000 ounces, or 33% of the company’s total gold production. This was a growth of 92% quarter-over-quarter, driven mainly by higher sulphide grades due to positive model reconciliation, as substantial mining took place in the heart of the deposit in Phase 5C.

The Cerro Negro mine in Argentina and the Eleonore mine in Canada are also ramping up, which led to an increase of 38,700 ounces and 11,400 ounces, respectively. These mines achieved commercial production in 2015.

Goldcorp expects production for 2015 to be at the high end of the previously guided 3.3 million to 3.6 million ounces for 2015. After Cerro Negro and Eleonore ramp up, visibility on production growth decreases.

Significant upside?

At a time when gold miners like Barrick Gold (ABX) and Newmont Mining (NEM) are pruning assets so as to lower their costs and at the same time looking for assets with good production potential, El Morro comes as a significant opportunity for Goldcorp. If everything goes according to plan, Project Corridor would add close to 150,000 ounces of gold to Goldcorp’s production volumes post-2020, which will be quite significant.

Investors can access the gold industry through gold-backed ETFs such as the SPDR Gold Trust ETF (GLD) and the VanEck Vectors Gold Miners ETF (GDX). GDX invests in senior and intermediate gold stocks. NEM and GG account for 13% of the ETF’s holdings.

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