Goldcorp’s (GG), Penasquito mine in Zacatecas, Mexico, is about to go into commercial production, after nearly 4&1/2 years of construction and $1.7 billion dollars invested. This is a major milestone for Goldcorp which will dramatically increase its bottom line going forward. Goldcorp ranks among the elite of the major miners and Penasquito cements Goldcorp’s position in that group.
There is more to this story than meets the eye at first glance and another player that I have discussed in articles on BuyGoldCo.com, Silver Wheaton (SLW), stands to increase its royalties through the Penasquito mine.
Penasquito is forecast to produce an average of approximately 28 million ounces of silver annually over the estimated 22 year mine life and Silver Wheaton is to receive 25% or approximately seven million ounces of silver annually. Both companies stand to profit handsomely from this agreement.
Take a look at Goldcorp’s statement, regarding Penasquito from their website www.goldcorp.com
The Peñasquito mine is located in the mining state of Zacatecas, Mexico. It possesses flat topography and excellent proximity to roads, power, rail, skilled labor and smelters. It is a 100% owned operation composed of two open pits – Peñasco and Chile Colorado containing gold, silver, lead and zinc. Peñasquito will be Mexico’s largest open pit mine once built.
At December 31, 2009, proven and probable gold reserves totalled 17.8 million ounces. Silver reserves totalled 1,070.1 million ounces while proven and probable lead and zinc reserves total 7.2 million pounds and 15.9 million pounds respectively. Measured and indicated gold resources stood at 4.45 million ounces and measured and indicated silver resources stood at 391.0 million ounces.
In October 2009, the first lead and zinc concentrates were produced and concentrate shipment to smelters commenced with first sales recorded in November 2009.
All components of Line 1 are working as planned and Line 2 construction remains on schedule for mechanical completion at the end of the second quarter of 2010.
Annual production over the life of mine (estimated 22 years) is expected to ramp up to approximately 500,000 ounces of gold, 28 million ounces of silver and over 450 million pounds of zinc.
On Wednesday September 1st, Chuck Jeannes, Goldcorp’s President and CEO, stated that he anticipates the company will declare commercial production at its Penasquito mine in Mexico soon. He further described the Penasquito mine as the “key driver” of a current five-year plan by Goldcorp to increase output by 50% or more. Jeannes added,
“We’re just completing construction and, hopefully within just a matter of days, of declaring commercial production at Penasquito.”
Penasquito, which will be the largest open-pit mine in Mexico, is expected to produce 180,000 ounces of gold this year. Over the life of the mine, Penasquito is expected to average 500,00o ounces of gold annually, along with 30 million ounces of silver plus smaller amounts of both lead and zinc.
“Like most mines, it takes a while to ramp up to full production. So over the next five years, we’ll see production going from what we guided this year—at 180,000 ounces—to nearly 800,000 ounces in 2014.”
As of Dec. 31, 2009, gold reserves totaled 17.8 million ounces and silver reserves totaled 1.07 billion ounces for Penasquito’s anticipated 22 year mine life.
The mine has had nearly 4,500 people working on it including contractors, their subs and construction personnel. There are currently 2,000 working on the mine. Once the mine is running it should employ around 1,500 according to Jeannes.
Goldcorp to Increase Gold Production by Over 50%
Goldcorp’s management expects the company to increase its gold output by 57% during a five-year period through 2014. Yes, you read that correctly, a 57% percent increase in production in just 4 years! Don’t take my word for it, take it directly from Jeannes’ own words.
“It is based entirely on projects that are already in construction or nearing production. So it’s a very reasonable and achievable growth profile,”
Additional projects that are under way or nearing completion for Goldcorp are: the Red Lake complex in Ontario and the study to reopen and expand the Cochenour mine a few miles away, to mention just two of the more immediate plans, according to Jeannes.
“We don’t have final numbers. We’ll be providing those in a scoping study that is due yet before the end of the year. But we’re looking at 300,000 or so ounces a year from Cochenour to supplement Red Lake production.”
Red Lake is expected to provide some 675,000 ounces this year while plans call for production at Couchenour to begin in 2014.
Also on the table are Pueblo Viejo in which Goldcorp is partnered with Barrick Gold (60%), located in the Dominican Republic, with reserves put at 23.7 million ounces. Production output is expected in late 2011, with Goldcorp to receive 40% of estimated annual gold production in the mine’s first five years of between 415,000 to 450,000 ounces.
Goldcorp is clearly a miner on the move with huge upside potential as the price of gold rises. If it is not currently in your portfolio, it should be on any pullbacks in price. This baby has huge upside potential! While you are looking to expand the mining shares in your portfolio, don’t forget Silver Wheaton (SLW) which is another mover on the royalty side of the equation.
As always, I own both of these stocks and I urge you to do your own due diligence before purchasing or selling any stocks, warrants etc. I am an “average” gold investor and I give you my recommendations and reports based on my experience and my tolerance for risk. My decisions may not be right for your situation. With that in mind, check these two companies out and see how the cards line up for you.
Till next time, good luck and good trading!