Goldcorp's High Grade Production Slowing Down
Goldcorp. (TSX:G) CEO David Garofalo has told analysts that the high grade production cycle at the Red Lake mine in northwestern Ontario has roughly four more years to run.
The days of high grade production at one of Canada’s oldest and most reliable gold mining camps may be coming to a close.
Goldcorp. (TSX:G) CEO David Garofalo has told analysts that the high grade production cycle at the Red Lake mine in northwestern Ontario has roughly four more years to run. The expectation is that going forward, grades would be in the 9 grams per ton range, down from 16 grams currently.
Garofalo is referring to the high grade zone at the Red Lake mine, which has served as the backbone of the operation since it was discovered in 1995.
Red Lake is one of four mines which have contributed most of the gold that has been extracted from the region in the past 90 years. The others are Campbell, Madsen and Cochenour. Red Lake (formerly Dickenson) and Campbell operated separately for decades, but were merged by Goldcorp in 2007.
Goldcorp has been hoping to replace ore from the Campbell mine with production from the nearby Cochenour mine, which has been dormant since 1971. The Cochenour/Bruce Channel deposit under Red Lake was expected to produce 250,000 ounces annually over an estimated lifespan of 20 years.
However, Goldcorp recently removed Cochenour from its production planning–at least for the next three years–because of a lack of understanding of the geology. At a cost of around $540 million, Goldcorp has been working to develop an underground high-speed tramway that would allow it to ship ore from Cochenour to processing facilities at the Red Lake mine. Garofalo says the company is still about a year away from understanding how the gold deposit at Cochenour can be folded into the future of the Red Lake mine.
Goldcorp is facing similar challenges at another high grade discovery in the area known as “HG Young.” Garofalo says it will be approximately another two years before the company understands how HG Young fits into the future of the Red Lake camp. Back in February 2006, Goldcorp estimated that HG Young hosts an indicated resource of 116,000 ounces and an inferred resource of 517,000 ounces grading 20.44 grams per ton.
The aim is that both deposits will be ready to offset the end of the high-grade at Red Lake.
Goldcorp expects to produce 300,000-330,000 ounces of gold this year at Red Lake, down from 375,700 ounces in 2015.
Meanwhile, analysts at Commerzbank, quoting a report by Thomson Reuters GFMS, say many gold mining companies have taken advantage of higher gold prices for hedging purposes. GFMS says gold mines sold an additional 21 tons of gold forward to hedge themselves against falling prices. In total, 295 tons of future gold mining production had been hedged against falling prices as of the end of June – a number that is nearly four times as much as at the start of 2014 when mines started hedging against falling prices for the first time in years.
Commerzbank does not ascribe much importance to this development, saying that mining production has not played any major role in pricing on the gold market for many years. This is because gold has increasingly evolved from being a jewelry metal to an investment metal.
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Securities Disclosure: I, Peter Kennedy, hold no direct investment interest in any company mentioned in this article.