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Does Goldcorp’s 2016 Production Have a Downside?

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Fall in production

Goldcorp’s (GG) gold production fell by 22% quarter-over-quarter in 2Q16 to 613,000 ounces. The company’s management had guided for a 15% sequential fall in production.

The higher-than-expected fall was mainly due to:

  • lower planned mined grades at most of its operations
  • ten-day mill shutdown at Penasquito
  • slower ramp up of Pensquito
  • shutdown of Cerro Negro due to workforce reduction

Penasquito was the worst performer of all Goldcorp’s operations. Its production fell by 88% year-over-year (or YoY). The company, however, expects production to take off in the second half of 2016 as Penasquito returns to normal operations. It also expects higher grades from several of its other mines.

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Long-term guidance maintained

Goldcorp has maintained its production guidance of 2.8 million–3.1 million ounces for 2016. Investors should note that Goldcorp disappointed the Market in 4Q15 when it reduced its three-year forward guidance.

Goldcorp’s run rate for 1H16 was at 47% of its annual guidance. Weaker performances from Penasquito and Cerro Negro could lead the company to underperform on its guidance.

Goldcorp gave a three-year forward production guidance of 2.8 million–3.1 million ounces for 2016, 2017, and 2018. Previously, the company guided for higher production of 3.3 million–3.7 million ounces per year. However, we noted that there could be a significant upside to this guidance, as some of the company’s projects haven’t been included in it.

Comparable earnings

Goldcorp’s peers (GDX) are also trying to increase production. Agnico Eagle Mines (AEM), Goldcorp, and Newmont Mining (NEM) have stable production profiles. Kinross Gold (KGC) and AngloGold Ashanti (AU), however, may have trouble replacing their reserves in the long term.

There are various ways to invest in gold. You can physically purchase gold, invest directly in gold miners, or invest in gold ETFs. The gold-backed SPDR Gold Shares ETF (GLD), for example, is a major ETF for investors looking for exposure to gold.

In the next part of our series, we’ll explore Goldcorp’s project pipeline to get a sense of a long-term production upside.

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