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Goldcorp’s Expansion Plans Could Improve Its Production Profile

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Pyrite Leach project

Goldcorp (GG) has announced that it will proceed with expansion projects at its Penasquito and Musselwhite mines. This is in keeping with its focus on growth in 2016.

The Pyrite Leach project will see capital expenditure of $420 million. It will increase overall gold and silver recoveries. It will add 100,000–140,000 ounces of gold and 4 million–6 million ounces of silver per year to production starting in 1Q19.

The internal rate of return (or IRR) from this project is expected to be 17% at a gold price of $1,250 per ounce. Construction on this project will start in August 2016.

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Musselwhite Materials Handling project

The Musselwhite Materials Handling project entails an initial investment of $90 million with an after-tax IRR of ~25% for the long term. The project is expected to add ~20% to production and reduce ~10% of operating costs for the life of the mine. There’s also potential for improvement to the IRR through the successful upgrade and conversion of inferred resources. The commercial production from this project is also expected to start in 1Q19.

In addition to the above brownfield opportunities, Goldcorp has incremental upside potential from its newly acquired Coffee project from Kaminak.

The company mentioned during its earnings call that this acquisition fits its strategy of partnering with junior exploration companies. It’s also expected to add to the company’s production profile in the medium term. Kaminak’s key asset is its 100% owned Coffee Gold project, which is a structurally hosted hydrothermal gold deposit located in Yukon, Canada. Coffee is a high-grade, open pit, heap leach mining project.

Gold miners (GDX) (GDXJ) are rushing for projects in safer and more attractive jurisdictions. In terms of mining, Canada ranks as one of the best jurisdictions in the world. While Goldcorp and Agnico-Eagle Mines (AEM) primarily have exposure in safe jurisdictions, companies such as Kinross Gold (KGC) have suffered due to exposure in risky jurisdictions such as Russia (RSX).

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