Goldcorp’s Stock Prices by shaunamcginn on TradingView.com
The Canadian mining giant saw a 22% decrease in gold production in its third quarter of 2016, a figure indicative of production challenges, such as worker strikes and blockades, at two mine sites in Mexico and Argentina.
The Peñasquito gold mine – which is located in Mexico and is the company’s largest – halted production in late September because of a blockade set up by protesting mine workers. Fuelled by anger over loss of work contracts, it interrupted production for at least a week. Reuters reported that the blockade ended when Goldcorp reached an agreement with the community that promised to renew contracts and improve infrastructure near the mine site.
When asked about how these protests affected production, Goldcorp stated that the decrease was largely a result of Peñasquito’s operations moving to a planned ‘low grade’ zone. ‘Low grade’ refers to an area of the mine that is expected to produce less gold than usual. In regards to the worker’s strike, the company claimed it was resolved quickly and therefore did not drastically harm production numbers. It also stated it will continue to “deepen relationships” with the communities it works in.
Similar issues arose in the Cerro Negro gold mine in Argentina, another of the company’s largest. That mine also experienced production slowdowns, due to a reduction in the workforce. Goldcorp said this reduction was planned, as part of a strategy to “set up the site for long-term success.” It added that it’s expected that after this restructuring, the mine will be back on track to return to previous levels of productivity.
Based on an analysis of their third quarter financial statement, these challenges outlined above are mainly responsible for the decrease. While Goldcorp has other mines at work, it relies on Peñasquito and Cerro Negro for the bulk of its gold production. Overall, the company posited the decrease as something it could easily recover from.
But Josh Wolfson, a Senior Equity Research Analyst at Dundee Capital Markets, said it’s unusual to have such stark differences in production numbers between quarters. However, he said it wouldn’t be “unreasonable” for Goldcorp to expect to bounce back quickly from a 22% decrease, especially in an industry like mining that often finds itself in flux.
Goldcorp’s second quarter in 2016 saw similarly low production numbers. And it may be because it was a year of reevaluating for the company. A January 16th press release included comments from CEO David Garofalo, who said that 2016 was a year of rethinking Goldcorp’s business model. He said the company aims to increase gold production by 20% over the next five years.
The company also recently released its Guidance 2017 report, a document made mostly for investors that outlines production estimates for the year ahead. Goldcorp projected that both Peñasquito and Cerro Negro will produce 410,000 ounces of gold each in 2017.
What was unclear was how Goldcorp plans to mitigate the risk of further worker’s strikes or blockades. Goldcorp describes itself as being focused on “responsible mining practices.” It is also a proponent of Corporate Social Responsibility (CSR), a framework that encourages the use of environmental and people-friendly business practices.
In addition to their 2015 annual financial report, Goldcorp issued a 2015 sustainability report. In it, the company indicates that it spent 27 million on infrastructure and community investments. In the ‘Management Approach’ section of the report, it states that “Without community support, we cannot operate safely and sustainably.”
Goldcorp is expected to release its 2016 annual financial report on February 16th.