Can Goldcorp’s Costs Play Catch-Up to Lower Its Costs in 2017?



Industry costs bottoming

During its investor day, Goldcorp’s CEO, David Garofalo, mentioned that the all-in sustaining costs (or AISC) are bottoming out for the industry. Due to the pressure of low metal prices over the last few years, these companies have taken discretionary expenditures out of their businesses.

Regarding these expenditures for Goldcorp, Garofalo said, “We still have a significant downward trajectory over the next three to five years in our all-in sustaining costs, only because we are a couple years behind our competitors.”

Now that most of the company’s growth spending is done, it expects to wring these costs out of the system and catch its competitors on the downward trajectory.

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GG’s cost improvement

Previously in this series, we discussed the measures Goldcorp is taking to increase its production over the next five years. Those same measures that will increase production will also drive down all-in sustaining costs (or AISC) due to economies of scale.

Goldcorp expects its AISC to decline to $700 per ounce from the expected $850 per ounce in 2017, or 18% over the next four years (2017–2021). Other drivers of this reduction are:

  • $250 million in annual sustainable efficiencies
  • lower sustaining capital expenditures
  • optimization of assets

Garofalo noted that even a price of $700 per ounce in 2021 is quite conservative given the long-term assumptions on exchange rates and byproduct prices. For 2016, the company mentioned that its AISC is expected to be at the bottom end of the guidance range of $850–$925 per ounce.

Peers’ costs

Among its peers (JNUG) (GDX), Barrick Gold (ABX) has the lowest AISC. It aspires to achieve an AISC below $700 per ounce by 2019, which would be below the 25th percentile of the industry’s cost curve. Newmont Mining (NEM) has a 2016 cost outlook of $870–$930 per ounce.

As Newmont’s new low-cost mines come online to replace its maturing high-cost mines, its cost structure should become more favorable. Despite achieving cost improvements, Kinross Gold (KGC) remains a rather high-cost precious metal producer, with a 3Q16 AISC of $1,001 per ounce. Yamana Gold (AUY) has an AISC guidance of $880–$920 per ounce for 2016.


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