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Will Goldcorp Please the Market after a Disappointing 1H16?

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Will production accelerate?

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

Goldcorp expects its production to take off in 2H16 as the Peñasquito mine returns to its normal operations. The company also expects higher grades from several of its other mines.

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Costs should fall

As Goldcorp is set to report higher production in 2H16, its unit costs should fall simultaneously. Goldcorp’s all-in sustaining costs (or AISC) in 2Q16 were $1,067 per ounce. This was a rise of 26% year-over-year (or YoY) and 28% quarter-over-quarter.

Goldcorp’s management maintains that along with its production, its costs should normalize in 2H16. The return of Peñasquito to its normal operations and the improvement in grades should aid the company’s costs. Goldcorp has maintained its AISC guidance for 2016 at $850–$925 per ounce.

Goldcorp’s closest peers, Newmont Mining (NEM) and Barrick Gold (ABX), have reduced their AISC guidances for 2016 due to better-than-expected cost controls.

Project pipeline

Goldcorp’s budget for 2016 included $100 million to advance its internal growth projects through their study phases. With the Peñasquito Pyrite Leach project and the Musselwhite Materials Handling project approved by the company in July 2016, GG’s growth capital expenditure has risen to $200 million.

The Sprott Gold Miners ETF (SGDM) invests in US-listed gold miners. Kinross Gold (KGC) and Goldcorp form 14% and 4% of SGDM’s holdings, respectively. Investors can gain exposure to gold by investing in the iShares Gold Trust ETF (IAU) and the SPDR Gold Shares ETF (GLD), both of which track gold prices.

Now let’s sharpen our focus on Agnico Eagle Mines.

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