Goldcorp Bountiful with Penasquito – Analyst Blog

Goldcorp Inc. (GG) has commenced production at its Penasquito mine in Zacatecas, Mexico. The company reported combined 30-day average throughput rate in excess of 70,000 tons per day, including daily throughputs as high as 105,000 tons. In its earlier release, Goldcorp had announced to produce 180,000 ounces of gold at Penasquito in 2010, and is on track to meet its guidance.

 

Goldcorp is building a high pressure grinding roll circuit at the Penasquito mine with capacity of 30,000 ton-per-day which is scheduled to be complete in October this year. By 2011, Goldcorp plans to ramp up production capacity to 130,000 ton-per-day.

 

The mine has a life of 23-year over, which is expected to produce an annual average of 500,000 ounces of gold, 28 million ounces of silver, 450 million pounds of zinc, and 200 million pounds of lead at net negative by-product cash costs.

 

The Penasquito mine in Mexico is a key asset for Goldcorp. The $1.6 billion project became operational in January 2010. With the production ramp up at the mine in early 2011, Penasquito will be one of the largest new mines in the world and the primary driver of Goldcorp’s growth. The production expansion would also result in a drop in Goldcorp’s total cash cost at the mine in 2011. The company expects total cash cost to remain below $250 per ounce, coupled with a production growth of over 50% in the next five years.

 

Goldcorp plans similar developments at the Cochenour at Red Lake, El Morro in Chile, the Noche Buena and Camino Rojo satellite projects near Penasquito and the recently-acquired Cerro Negro project in Argentina. Other growth projects include the advancement of Pueblo Viejo, which remains on schedule to begin production in the fourth quarter of 2011, the access and development plan for Cochenour, construction of a deep shaft at Hoyle Pond in Porcupine, and development of the exploration shaft at Éléonore in Quebec.

 

Goldcorp continues to be the leader among the North American gold producers with a forecasted production increase of 58% over the next five years. Goldcorp is benefiting from facility expansion, increasing gold prices and its dominant acquisition strategy. The company has the highest leverage to spot gold prices because of its completely unhedged position. The long-term rise in gold prices is a positive for the stock as Goldcorp is one of the low-cost gold producers of the world. The company’s average cash costs fell from $305 to $295 per ounce in 2009.

 

For now, Goldcorp has a short-term (1 to 3 months) Zacks #3 Rank and a long term (6+ months) Neutral recommendation.