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Why Peñasquito Shutdown Could Lead Goldcorp to Lower Guidance?

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Controlled shutdown at Peñasquito

On October 3, 2016, Goldcorp (GG) announced that it’s implementing a controlled shutdown of operations at its Peñasquito mine in Mexico. The shutdown follows the illegal blockade by a trucking contractor that began on September 26, 2016, according to the company. The blockade came after the company’s decision to diversify its local transportation supply chain and distribute the economic benefits to more local suppliers while realizing cost efficiencies at the mine.

Goldcorp stock fell 4.6% following this announcement. The Peñasquito mine is vital for the company and accounted for ~30% of its sales last year.

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Contingency plans

Goldcorp said that contingency plans are in place to enable mining and processing activity to restart as soon as the matter is resolved. The company also mentioned that it’s committed to respectful negotiations with the trucking contractor’s representatives. Goldcorp has already taken all the necessary legal steps such as filing criminal charges against the protest leaders and is awaiting a legal enforcement to end the illegal blockade.

No impact on guidance?

The company has mentioned that it doesn’t expect this shutdown to impact its overall production and cost guidance for 2016. It has guided for gold production of 2.8 million–3.1 million ounces for 2016. The all-in sustaining cost guidance for 2016 is between $850 and $925 per ounce. 

To read more about Goldcorp’s guidance and potential upside or downside, please visit, Does Goldcorp’s 2016 production Have a Downside? 

While the company doesn’t expect the shutdown to impact its guidance, Desjardins Capital Markets thinks otherwise. Its analyst wrote, “Earlier this year, the company performed the first site-wide shutdown of Peñasquito and the restart proved to be somewhat challenging; we thus view this as a potential risk for 4Q16 when the blockade might be resolved and the mine and mill restarted.”

Goldcorp’s peers (GDX) (RING) 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.

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