In 2017, Goldcorp (NYSE: GG) produced 2.57 million ounces of gold. That was the fifth-most in the world, which many companies would be more than happy to claim. But Goldcorp isn’t satisfied with that level of production — not by a long shot.
The $12 billion gold miner is currently hacking away at year two of an ambitious five-year growth plan that is meant to increase production, reduce operating costs, and grow gold reserves — a lot. If Goldcorp succeeds, then barring major price declines for gold, it would be difficult to imagine that the company would not be rewarded with a higher market cap and share price, which have declined about 16% apiece in the last three years.
So, investors might be wondering: Is Goldcorp on the path to success?
The 20/20/20 plan
Goldcorp has kept the naming convention for its five-year strategy pretty simple. The 20/20/20 plan spans from the beginning of 2017 through the end of 2021. It sets the following goals:
- Increase production 20%: The company aims to boost gold production to 3 million ounces by 2021, although adding in expected silver, zinc, and lead output would result in gold-equivalent production of 4.1 million ounces at the end of the plan.
- Reduce costs 20%: Goldcorp aims to reduce all-in sustaining costs (AISC) for gold output to just $700 per ounce, compared to $824 per ounce in 2017 and $856 per ounce in 2016.
- Grow reserves 20%: The goal is to increase gold reserves to 60 million ounces, compared to 53.5 million ounces at the end of last year.
Seems pretty straightforward. How’s the gold miner doing one-quarter of the way through the plan?
Goldcorp’s full-year 2018 guidance calls for 2.5 million ounces of gold production at AISC of $800 per ounce. Although gold volumes will be lower than last year, several growth projects will make their presence felt beginning in 2019. Expansions at Peñasquito in Mexico and Musselwhite in Canada were 86% and 65% complete, respectively, at the end of March. Those will be enough to lift total gold production to 2.7 million ounces in 2019.
The remainder of the production increase needed to fulfill the goal will come from the Borden project in Canada, which is on track to begin operations in the second half of next year. It’s expected to boost total gold production to 3 million ounces in 2020 — one full year ahead of schedule. Not surprisingly, those bumps in production volumes are expected to be mirrored by reductions in AISC. Goldcorp thinks it can drop expenses to $750 per ounce in 2019 and $700 per ounce in 2020.
The final piece of the 20/20/20 plan is a little trickier. That’s because Goldcorp has much more than 60 million ounces of gold resources in the ground at its mines, but it has to conduct detailed engineering work before concluding it owns that level of gold reserves. Seems like a small distinction, but it means a world of difference in the mining industry.
The good news is that work is underway to upgrade resources to reserves at four separate mines. Considering Goldcorp is one of the most experienced miners on the planet, it shouldn’t whiff on finding another 6.5 million ounces of gold reserves (what’s needed to hit the 2021 target) across its assets.
Going even further
Why stop at 20/20/20? Goldcorp has mentioned a Beyond 20/20 strategy that will receive its first $100 million in funding this year. Management isn’t getting too far ahead of itself, however. It’s really just a way to differentiate between mining assets that will contribute to the business by 2021 and those that won’t start production until 2022 or later.
Nonetheless, exploratory and engineering work is underway at two mines — the Century Project at the Porcupine mines in Canada and the Norte Abierto joint venture in Chile — that management thinks can lead to “long-life, low-cost, and large-scale mines” for future operations.
Goldcorp appears to be on track
Investors shouldn’t pop the champagne corks just yet, but things look pretty encouraging one-quarter of the way through the five-year growth plan. Goldcorp is on track to boost gold production to 3 million ounces by 2021. While the volume increase would improve mining efficiency and should go a long way toward reducing AISC to just $700 per ounce, investors should keep a close eye on this number, as it can be hurt by various factors that don’t show up until expansion projects come online.
That said, this gold miner is poised for growth in the near term (and perhaps even beyond 2021), which shareholders would welcome after years of stagnation. Investors interested in gold stocks should give this one a closer look.
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