Goldcorp sees production shortfalls at Penasquito, Red Lake

A day after Goldcorp (G-T, GG-N) cut its 2012 production guidance, the company saw its share price take a hit.

In Toronto on July 11, Goldcorp shares approached a 52-week low of $32.52. They fell $3.74, or 10% to $33.89, on 6.1 million shares traded.

The company is blaming the anticipated production shortfall on operational problems at two of its mines: Penasquito in north-central Mexico’s Zacatecas state and Red Lake in Ontario.

Goldcorp expects that gold production for 2012 will range from 2.35 million to 2.45 million oz. Its previous guidance for the year was 2.6 million oz.

Guidance for silver output was also revised to the downside, and the company says it should turn out 30 million to 31 million oz. of the metal this year, rather than the 34 million oz. it had anticipated. Its copper production forecast was unchanged at 110 million lb.
Lower production generally translates into higher mining costs, since a great part of expenses are fixed. This makes overall costs fall with increased production, and rise with reduced production.

Goldcorp says the lower-than-expected production means total cash costs companywide could reach between US$310 and US$340 per oz., from the previous estimate of US$250 to US$275 per oz.

Water — or more precisely, a lack of it — is the company’s main problem at Penasquito. A prolonged drought in the region has made less water available for operating at full capacity, and Goldcorp has in turn reduced throughput at the mill. The company is aggressively drilling new wells and looking for ways to bolster the water it can reclaim from its tailings facility.

The mine is slated to produce 370,000 to 390,000 oz. gold this year, compared with a previous guidance of 425,000 oz.

As for Red Lake, which is Goldcorp’s biggest producing mine, production is expected between 460,000 and 510,000 oz., which is down from the previous guidance of 650,000 oz.

Seismic activity is a major reason for operational delays at the mine, which is in the Red Lake-Balmertown area. The company cut off access to the mine’s High Grade zone so that it could make de-stressing cuts in the rock. The work should increase output from the zone once mining resumes.

Another cause for concern has been the inconsistent grade found in the Footwall zone during the first half of the year. The situation, Goldcorp says, means it has to be conservative about forecasting production for the second half.