Executives
Jeff Wilhoit - Vice President, Investor Relations
Chuck Jeannes - President and Chief Executive Officer
Lindsay Hall - Chief Financial Officer
George Burns - Chief Operating Officer
Horacio Bruna - Senior Vice President, Mexico
Chris Woodall - Vice President, Canada & US
Eduardo Villacorta - Vice President, Central & South America
Barry Olson - Senior Vice President, Project Development
Charlie Ronkos - Senior Vice President, Exploration
Analysts
Anita Soni - Credit Suisse
Jorge Beristain - Deutsche Bank
David Haughton - BMO Capital Markets
Goldcorp Inc. (GG) Analyst Day Conference March 8, 2013 8:00 AM ET
Jeff Wilhoit - Vice President, Investor Relations
I ask everyone to take their seats we are going to get started here. See we are still waiting for a couple of stragglers here, but I think we will do a bit of a rolling start here until they show up, but I wanted to say good morning. Thanks to everyone here for braving the weather and getting here in person. We are going to start the webcast in a few minutes or couple of minutes. And before that, I just want to go through a couple of things. Number one, obviously you will see on your agenda, the first page of the book shows me of a single break scheduled at 10:15. We will try to do that as close to 10:15 as possible, but obviously if you need to leave the room for a call or any other reason, if you could just walk well down the hall, so your conversations aren’t inadvertently broadcast. And of course, when you are back in here, put your phones on silent mode, that would help out the guys on the webcast.
So, we will be moving steadily through the material, but you will have plenty of opportunities for questions, but I’ll ask if you can wait until the end of each topic before you pose your questions. So, again, we can kind of keep things going smooth on the webcast, and we’ll have microphones in the room and please try to wait until you have a microphone in your hand before you ask your question. I will ask the gentlemen on the podium to repeat questions if in fact one question doesn’t show up on the mike.
Obviously, you all know where we are. You all know where we came from in the hotel. If there is an issue, where we have to leave quickly, I think the best route is probably back, the way you became in muster in the lobby of the hotel. And for any reason, you can’t get that away, there is another exit to the left back toward where the breakfast was held. So, and again muster in the lobby if possible.
We expect to conclude around again quarter to 1 today. We will try to keep it as close to that as possible. Obviously, we know a lot of you are trying to get back out of town, but we will be hosting a lunch directly following this. For who can’t stay on, we obviously would love to have you all here. Are there any questions before I go on? Okay, well with that Andrew, I think we can start to initiate the webcast here and we’ll do a brief pause and then we’ll get underway.
Good morning and welcome to Goldcorp’s 2013 Investor Day. Among the senior management in the room with us today are Chuck Jeannes, President and CEO; Lindsay Hall, CFO; George Burns, COO, and we are also joined by Horacio Bruna, Senior Vice President, Mexico; Chris Woodall, Vice President, Canada & US; Eduardo Villacorta, Vice President, Central & South America; Barry Olson, Senior Vice President, Project Development; and Charlie Ronkos, Senior Vice President, Exploration.
For those of you participating on the webcast, we have included a number of slides to support this morning’s discussion. These are available on our website at www.goldcorp.com. As a reminder, we will be discussing forward-looking information today that involves unique risks concerning the business operations and financial performance and condition of Goldcorp. Forward-looking statements include, but are not limited to statements with respect to future metal prices, the estimation of mineral reserves and resources, the timing and amount of estimated future production, cost of production, capital expenditures, and cost and timing of the development of new deposits.
Forward-looking statements are subject to known and unknown risks, uncertainties and other risks that may cause the actual results to be materially different from those expressed or implied by such forward-looking statements. Accordingly, you should not place undue reliance on forward-looking statements.
With that, I will now turn the call over to Chuck Jeannes.
Chuck Jeannes - President and Chief Executive Officer
Thanks, Jeff and good morning everybody. And just as Jeff said, I really want to thank you for being here today as this has been bit of a challenge. For those of you on the webcast, we may not be looking at the weather channel. There is somewhat horizontal snow here in Boston this morning. And so those of you who braved the weather to join us, I really appreciate that. And I really hope that everybody can get out of here today to spend the weekend with their families.
Jeff introduced the team, but I just wanted to comment that I am quite proud of the fact that we have a very stable experienced management team at Goldcorp. Everybody on this stage with the exception of one has been with us for several years. And Chris Woodall is our new leader for the U.S. & Canada operations, you will get a chance to meet Chris today and we are thrilled to have had him joined us recently. George Burns, of course, has been in front of you for several years, but in different roles, and he is now Chief Operating Officer and I am very excited to be working with George in that role and look forward to you hearing from him today as to his vision in terms of where he wants to take the operations of the organization.
As I have spoken to investors over the last few weeks, one of the common questions that I am getting is, are you going to change your strategy? Have you reviewed your strategy? What are you going to be doing differently? And I want to respond to that by saying we have reviewed our strategy. We have spent a lot of time thinking about the various assumptions that we have made as we built the company over the last 10 years and whether those assumptions remain true today and we are confident in fact that the strategy is sound that we are on the right track and that we don’t need to change our strategic focus. So, as you can see on the slide, we continue to focus on growth and quality ounces. We are focused on cost management, so that we can retain the low costs that have defined Goldcorp over the last many years. We have a conservative balance sheet and are quite pleased with that, and of course, the financial capacity and liquidity to fund our growth.
We operate and look to continue to grow in areas of relatively low political risk and we are focused on always acting responsibly in the way we conduct our business. And you can see our vision in the middle of the slide together creating sustainable value. And that’s important to us, because I think we have learned as an industry and certainly as a company over the past many years that if we don’t conduct our business in a way that provides benefit not only to you our shareholders, but also to our employees plus 15,000 employees around the world, and our communities and the regions and the countries where we operate. If they don’t see the benefits of our business, we won’t be permitted to conduct our business. And so it’s very core to our company that we operate and conduct ourselves in that manner. And I am quite proud of the work that we are doing around the organization.
So, there has been a lot of discussion obviously about the challenges facing the gold industry, and we can’t hide from the fact that the last couple of years have been difficult. And for Goldcorp, we had challenges last year, including our missed guidance. And so, when I said we went through a strategic review, the thing that we concluded that isn’t so strategic is that we need to execute better. And I am confident that had we not had the operational slips that we had last year in terms of the seismic issues at Red Lake and the water supply at Peñasquito that we would have had a very strong year. And so that’s what gets us back to the confidence in the strategy.
So, what are we doing about that issue? Well, we spent really eight months following the problems that arose at Red Lake early in the year looking at how we can do a better job of our planning and forecasting. And we revamped the process to include a very thorough risk assessment and analysis that includes identifying the risks to meeting all of our expectations at the sites, and then quantifying them, and then probability waiting them, and then the result being the range of possible outcomes that you see inherent in our guidance. And what we believe is that we have now acknowledged the fact that sometimes things happen in our business that you can’t absolutely anticipate, but looking at a range of probabilities, we think we have taken those into account. So, I am quite comfortable with the guidance that we have provided you for this year and for the five years and you will hear George and the team talk about that as well.
Another challenge for the industry has been or is looking forward I think particularly based on some conversations I had last night the lack of growth and that has not been issue for Goldcorp. We continue I believe to have the best growth profile in the senior space and in fact now that we have Pueblo Viejo started up and growing through this year I believe we have got the only year-on-year growth in the senior North American gold space. So, we have been talking about this for some time and I recognized that due to the slower than anticipated startup at Peñasquito and at Pueblo Viejo last year that growth has been pushed out a bit but it’s here today, it’s here this year we expect double-digit percentage growth in our production year-on-year.
Poor capital allocation decisions or how we decide to allocate capital has been probably the thing that investors have wanted to talk about the most with me over the last several months. And again I think at Goldcorp we have done a pretty good job in this area. We have made acquisitions of high quality projects that we are building today and we are glad we are building them. And I think it’s fair to say that anybody would be building Cerro Negro, Éléonore, Cochenour. These were high quality assets. And I do believe that we have a particular strength in analyzing acquisition opportunities and going forward when they make sense and saying no and walking away when they don’t. And as a result we have taken good care of the balance sheet and I – we all take pride in the fact that I think we have been good stewards of the shareholders’ capital and not having any write downs.
Operating cost escalation is something that we are all facing in the industry and you are going to hear a lot today about our efforts as an organization to not just meet the numbers that we have provided in our guidance, but to do better than that to contain costs. And George and his team and all of us have focused on what we call operating for excellence and most of the companies are talking about their continuous improvement programs. This is ours it started over a year ago and we have already got some very good results that the guys will talk about. But this is something that we are truly focused on when I talk about execution, it’s looking at the day-to-day operation of the mines and the way we deliver value and I think we have got some good opportunities there to talk about today.
So, the result overall and the probably the biggest thing that I hear is that the free cash flow that was anticipated as the gold price went up has been slow in coming and we have recognized that but at Goldcorp we are confident that while this year we continue to invest in the projects and you will hear all the details today that we are definitely on the path to free cash flow in 2014 and for the indefinite future.
One of the things that I sets – I think set us a part a bit is the fact that our growth profile is focused on projects that are relatively low in terms of capital intensity. The number of dollars we spend to add, announce of future production is quite reasonable, I believe at less than $240 per ounce. So, what you are seeing on this slide is that for those projects that contribute to our five-year plan including Pueblo Viejo which is just ramping up this year we have spend or committed about $3.5 billion and we have got $2 billion left to spend. So, still a large number, but on a relative basis something that is very manageable and is near term. This is the big year for us in terms of spending at Éléonore and Cerro Negro alike and so as we get passed 2013 we see that capital falling off as we get closer to the first production with – first production at Cerro Negro at the end of this year and then at Éléonore at the end of 2014.
Our guidance has been out since July 7th, so probably not a lot of news here. A couple of comments I wanted to make first we are on track. We are only two months into the year but happy to say that we are performing as expected in terms of our production and costs. Second, as we said in January remind everybody that we are growing production. So, as Pueblo Viejo ramps up that will impact our quarterly production. So, don’t take the guidance and divide by four it ramps up pretty steadily over the course of the year.
And then third, costs are probably the thing that was most surprising to the market when we put out this guidance. You can see on an all-in basis the 2012 actual cost was $874 an ounce and we are anticipated between $1000 and $1100 this year. My point is that that is really an aberration and that we expect the costs to come down significantly next year and over the five-year plan and Lindsay will go into some of the details on that but it’s generally around the fact that we are in low grade cycles at both Éléonore and Peñasquito and this is a startup year at Pueblo Viejo and we won’t be seeing the strong costs there necessarily this year that we will over the course of the rest of the five years.
Here is the five year plan and I guess the key message here is that that same effort at assessing risks of performance that went into the guidance that we have provided for 2013 we have tried to apply to the five-year plan. And in particular we were talking at dinner last night one of the things that we have learned is that mines don’t always startup exactly the way they look like in the spreadsheet and the feasibility study and we have learned that at Peñasquito and now at Pueblo Viejo. So, what we have tried to do is take that into account with the starts of Cerro Negro at the end of this year and Éléonore at the end of next year and anticipate that things may not work exactly as planned and give ourselves a little room there. So, you see the guidance ranges over the course of the five-year plan and again we are comfortable with those numbers.
So, what do we get from that. We are not about making ounces, we are about making cash. And you can see here the consensus of the analysts who follow our space in terms of what they believe that cash flow will be over the next three years relative to the peer group. So, you see very strong cash flow growth at Goldcorp and certainly as I have said we are looking forward to the free cash flow significant free cash flow next year and beyond.
So, that takes us to the balance sheet, very strong liquidity and financial position. You can see we ended the year in a net cash position with our only debt being the convertible senior notes due in 2014. I think it’s fair to say that this is a bit of lazy balance sheet and there is an opportunity to employee a modest amount of leverage in order to be efficient with the way we manage our investments in our balance sheet. And so in a time of historically low interest rates, we do keep an eye on that market and think about how we might manage that going forward.
Dividends have of course been an important part of our story for several years now. We have increased the dividend each of the last four years. You can see up 233% since 2009. And I think it’s important to see how much of our actual cash flow that we are providing back to shareholders relative to the peer group. So, for me this is a fairly unique position that we hold and that we are providing among the most of our cash flow back as anyone in the group, but we are also growing significantly at the same time and that’s something that we think sets us a part and certainly we are committed to continue growing that dividend over time.
Reserves you are going to hear a lot from Charlie today about some very exciting things that he has got going on in the explorationary around the organization and this has been an outstanding record of success for Goldcorp. I don’t think we get credit enough frankly for the strength of our exploration programs. We are seeing by those who don’t maybe know us as well as you in the room as acquirers of ounces. And yes we have been acquisitive when we see high quality projects, but we generally acquire things that have the opportunity to grow then over time. And so what we have done here is we have only had one acquisition in the last three years, but it has the combination of things that we have acquired in the past and that has allowed us to continue to grow the reserves very significantly. You can see obviously we didn’t issue any shares again last year and we don’t plan on it. So, we have grown reserves on a per share basis. And importantly, using a gold price of $1350 an ounce, we maintained the same grade in our reserves. So, we did not grow reserves by adding marginal ounces, low grade ounces to the reserve. We maintained our reserve grade, which again I think is fairly unique in the space.
So, that’s what I wanted to talk about to get the day started. This day is really about George and his team talking about the operations and the projects and the exploration and excitement that we have. And Lindsay will follow up at the end with some financial information and go through some of the cost details of the organization. I would like to pause now if I could and see if there is any questions on the general strategy and issues regarding the company, and if so, we’ll take those now. And then otherwise we’ll get on with George and the guys. Do we have any questions?
Question-and-Answer Session
Unidentified Analyst
(Question Inaudible)
Chuck Jeannes
Okay. The question was on the geopolitical risk issues around our business, and as you heard me say, we think we have a relatively low risk portfolio, relative being the term, there is always some risk. We do operate in places like Argentina and Guatemala, but over 70% of our production comes from North America. And I think there is a little bit of a misnomer, because someone told me the other day that well, you are building new mines in Argentina and in the Dominican Republic. So, you are moving south. And I said well, remember we are also building new mines in Canada, so plus 600,000 ounces annually from Éléonore and Cochenour reinvestment at our Red Lake mine. So, we expect that overall mix to remain very North American-centric as it is today.
Certainly, probably the thing that I spend a lot of my time on and the people always ask what keeps you up at night, I would say, it’s this issue of resource nationalism and the fact that countries around the world, where we do business or where we think about doing business in the future are operating their governments and deficit spending mode and they are looking for new sources of revenue. And we are an industry that is making profits. And so we have a very big target on this. And so we have seen that. We heard last week the government of the Dominican Republic talk about bigger piece of the pie at Pueblo Viejo. We have seen I am going to Montreal next week to talk about, to consult with the government about what they might want to do in Quebec in terms of tax policy. This is an ongoing issue pretty much everywhere we do business.
And so I think it’s up to the mining industry to do a better job of representing itself and representing its finances. And the key to that has been and is to start talking about the all-in costs of producing an ounce of gold rather than cash costs. And Goldcorp has taken a leadership role in that. We came out in early January with all-in cost numbers both for 2012 and going forward and we expect to fully move to reporting all-in costs over the course of time. We are working with the World Gold Council, and we will confirm to whatever the industry standard that results from that effort. We are very active in that effort.
And I think the key issue there is that frankly our investors and analysts certainly know that sustaining capital and G&A and exploration are other costs that have to be accounted for in our business. The governments and other stakeholders that we deal with don’t necessarily have that detailed view from our financial statements. So, when we talk about producing gold at $300 an ounce, it sends an inaccurate message. And right now, we are talking about giving the full story sustaining capital G&A, exploration, everything else that goes in to producing gold. And I think that will allow us to have much more productive discussions with these governments. Yes.
Unidentified Analyst
You brought up the subject of value destructive M&A and your track record as you said your team being able to analyze deals and walk away if necessary. And without naming any specific names, and that’s not where I am going, no specific names, no specific projects. Can you give us an example of how the team analyzes certain situation and said listen, this is not for us?
Chuck Jeannes
Sure. And I don’t think I said value destructive M&A, I try to look at the positive and talk about the fact that we have been good at M&A. Yeah, we have done this for a long time and we have got a very experienced team led by Timo Jauristo. And what we do is always build our own resource model. And so we get the data, Charlie and his guys and all the team work together to actually draw our own shapes and come up with our own resource model, because people don’t really appreciate. There is a lot of subjectivity that goes into building a resource. It’s not just pure math. It’s interpretation of how you interpret the geology and how you extend it. And oftentimes, we find that our model ends up showing something less or either lower grade or lower tonnes than what is the assumed resource for something that is assumed by the market or by the owner.
And then when we also apply, we take that resource model and create a financial model, and we apply our own experience with capital and operating costs, we often find that they are higher than are being assumed by the market or the owner of the asset. And the net result is that there is a difference in valuation. And if that difference can’t be bridged by some other understanding and value, then we walk away. I mean, the goal here is to make deals that provide a rate of return to create value for our shareholders, and if we can’t do it, we don’t do it, we are not going to buy anything just for the sake of buying. And then there is this phrase out there, growth for growth’s sake, that’s never been the case at Goldcorp.
Anita Soni - Credit Suisse
I think slide four, but it’s the one about capital intensity.
Chuck Jeannes
Yes.
Anita Soni - Credit Suisse
$240 per ounce, could you just walk me through the assumptions for each of the asset side back and play about 23 million ounces and I am just wondering if that’s you know me?
Chuck Jeannes
Yeah, we will take offline Anita. Certainly, as I said, it includes Pueblo Viejo, Cerro Negro, Éléonore, and Cochenour. And with the expected life of mine ounces from those, from the feasibility studies divided by the capital that we are investing, so…
Anita Soni - Credit Suisse
The embedded assumption for Cochenour and Camino Rojo?
Chuck Jeannes
Okay. Well, you will be able to talk specifically about those projects as Barry is introducing them a little later. Thanks. Alright, with that then, I will pass it over to George, sorry, over to George and thanks very much for your attention. Sorry, one more question, I didn’t see, my apologies.
Jorge Beristain - Deutsche Bank
Just getting one under the wire here, can you hear me?
Chuck Jeannes
Yes, Jorge thanks.
Jorge Beristain - Deutsche Bank
Jorge with Deutsche Bank. Just going back to the point you made earlier about how the shift to all-in cost is something it does seem that you have been saying it’s more in response to the governments and helping governments and stakeholders perhaps understand the true nature of mining costs that aren’t reflected at the income statement, but do you think that the investors fully understand this as well and especially retail investors. And I was wondering if you think the move towards this more transparent kind of all-in cost could also solve the conundrum that these companies have had in terms of perhaps not having the leverage that the market expected to gold?
Chuck Jeannes
Yeah, that’s a good question. And we have thought a lot about that. I assume that people who are investing millions of dollars in stocks actually go to the financial statement and look at the cash flow statement of what the cash is actually coming out the door after the actual costs, but to the extent that there are people of retail investors or others who have relied on the cash cost measure, it is a good measure of something of the operating cost efforts at a particular mine. And it’s not to say that it shouldn’t have been used at all, but it is clear that sustaining capital was kind of ignored and sustaining capital has grown just like operating costs have grown over the past several years and that has impacted the margins and to the extent that people were expecting higher margins it may be because they didn’t appreciate the fact that sustaining capital chunk was in there and of course what we are talking about there is the cost of replacing equipment and engine rebuilds and at our underground mines, the development work that you have to do to stay ahead of the actual mining areas that we have available to us in the particular year. So, yeah, perhaps it will allow a more open transparent discussion of what the true margins are and that will allow or get us pass this point where we seem to be where there is disappointment in the margin growth and instead talking about what we are doing to contain cost, so that we can maintain and grow those margins.
Jorge Beristain - Deutsche Bank
I could just have a follow-up as well. You mentioned about a good free cash flow outlook for 2014, how does that translate into your thinking about dividends. I know that historically Goldcorp has provided itself on being a growth company, but we have seen in the market and I think there was news in the Wall Street Journal yesterday about a record return of cash to shareholders, $300 billion, I think from the U.S. stock market both in terms of buybacks and dividends, and that’s obviously served the flavor too sure in the low interest rate environment. So, I was wondering if you could talk about, what does an increasing free cash flow outlook for Goldcorp mean ultimately to shareholders?
Chuck Jeannes
Well, as I pointed out, we have steadily increased the increased the dividend and we expect to continue to do that. If or not if, but when we find ourselves with significantly higher free cash flow, management’s judgment is always around how best to reinvest that, and we can reinvest it by acquiring new assets that we think provide strong returns and then buy and build those mines. We can reinvest it by giving it bad or we can spend it, I guess by giving it back to the shareholders and then you can do that and either share buybacks or dividends. We have historically felt that dividends were the appropriate way, but that’s I guess where the rubber hits the road, that’s where management and the Board spend their time talking about what to do with that excess cash. And frankly as I said, before I think we are good at acquiring things and then adding value over time through building them and through growing them through – with the drill bit, and if we can find assets that allow us to do that and provide a strong rate of return we’ll do it, but I don’t see it as neither or. I think we can continue to grow the dividend and look for those things to continue our growth into the future. Yes.
Unidentified Analyst
Chuck, couple of questions, you mentioned earlier that 2013 is a bit of an aberration cost wise, what do you expect the long-term sort of all-in costs or cash costs to be for the business?
Chuck Jeannes
Yeah, we don’t guide cost beyond the current year, we used to and we found that there were just so many vagaries in the exchange rates and metal prices and everything that it was very difficult to do. So, I’m saying that we expect it to go down significantly. And Lindsay will give you a little bit of detail on that in terms of where our cost increase is coming from this year, and then you can do a little bit of assumptions as to how that will change going forward based on the fact that Pueblo Viejo gets to a steady state. We get into good – back into good grade at Peñasquito and Alumbrera and we had lower cost production from Cerro Negro. So, if I could maybe defer that question and so Lindsay is up.
Unidentified Analyst
Just a follow-up, I see sort of exploration expenditures going to go up year-on-year as well as corporate admin. I think most companies have been seeing we are going to cut on the expenditures. Can you just comment on what your philosophy is and then how you are thinking about budgeting particularly on those two costs?
Chuck Jeannes
Well, certainly exploration we are getting a lot of bank for that buck, and I have zero desire to cut Charlie’s budget, because he adds a lot of value with it. And I think when you hear from him today, you will see where that’s coming. On the G&A side, we are a very lean organization. I mean, we have grown dramatically over the last several years, but we continue to add people and it requires people to be successful and we’ve got a lot of new folks coming on. We actually believe that over the course of the next three years as we bring these new mines on, we’ll need about 3,000 more people, and it’s not just miners at the sites, but you need folks in the regional and corporate offices to manage that new business. And so if you compare our G&A on a per ounce basis with the peer group, I think you will see that we are quite lean in the way we manage the organization. We are decentralized. We give our mine general managers the lot of authority to run their businesses and try not to have a command and control organization. And as a result, our head offices are much, much smaller than most of the peers. So, I don’t see that as a problem, and certainly we are not looking to cut G&A. We are looking to add continued quality additions. Thanks.
Unidentified Analyst
Chuck, just following up on this with all the focus now in gold about full costs and cash flow returns, philosophically, do you think that’s where you find ask indeed at number two at the end of the day and it’s your company becomes 60% copper for instance. Do you think philosophically gold investors understand this now that generates more cash in this whole multiple gains going away forever for diversification?
Chuck Jeannes
Well, just so everybody understands, we haven’t found that and we are not becoming 60% copper anytime soon. And certainly if we are looking out there and we find something that is a significant divergence from our current strategy, which is to grow our gold production, we’d have to have a lot of discussion about that because it assumes that there is no premium to producing gold versus some other metal. And I don’t believe that. If you look at the numbers today, there is still a gold premium. It’s not as much as it was, but on a cash flow multiple basis, NAV is becoming less measure relevance I would say, but certainly on our cash flow multiples of not just us, but other growing gold companies versus base metal producers, we think there is an advantage there. And so we think we want to stay primarily certainly a gold company, and we like that space. Alright, thank you very much, and I’ll turn it over to George.
George Burns - Chief Operating Officer
Good morning everyone. Thanks, Chuck. This morning I understand you are feeling really confident with the leadership team that I am working with and with the solid team of mine general mangers and project mangers back at our sites. We are really well-positioned to have a good year and to execute the growth that Chuck has talked about. I want to start out talking a little bit about our vision. At Goldcorp, our vision is together creating sustainable value for all of our stakeholders. And what that means to the operating group is we focus on six strategies that really helped everyone of our employees focus on how we are going to create that value.
And at Goldcorp, we kind of divide our strategies into two groups. There is the people side of the business and there is the result side of the business. And for us, our number one strategy is to grow our people, and we really believe by growing our people, we are going to derive the results we are looking for in the other five strategies. So, after investing in our people and the growth in our people, it will make us successful. We are also recognized its safeties are really important part of being successful and mining is a pretty tough business. There is a lot of risk that we need to deal with. So, we have put a lot of focus on our safety and we have seen some really good results there. Our vision at Goldcorp is to make Goldcorp safe enough for our families, and I think that vision has everybody focused on what we are trying to achieve.
The other really important part of the people side of our business is our partnerships. And I think our company gets us better than any other organization than I have worked with, where we really dig in deep to get to know our communities, to get to know the governments in which we work with, our vendors and our partners, and when you bring that whole people side of the strategy together, I think that’s really the foundation that’s what’s driving the success at Goldcorp. So, we get that all that right, then it’s the result side of the business it really drive the cash flow. And so we ask every employee in the organization to understand the impacts and how they can influence growing our margins, growing our reserves, and growing our production.
So, I want to talk a little about our operating for excellence culture Chuck mentioned earlier its something we been doing for a while now. But we have really stepped it up in this last six months. And we have got – we brought all of our general managers and our leadership team together recently to really put an increased focus and a sense of urgency on looking at opportunities to improve productivities improve efficiencies focus on financial discipline make sure we’re making really good decisions. And there is a lot of enthusiasm in the organization for that. We have had successes along the way, but I describe it is an increased sense of urgency where we are asking our leadership team and our whole work force to focus on opportunities to improve. And from my perspective it’s not just be capital investments there is a little things we can do cumulatively it will add value and that are not capital intensive. The best example I can give you would be our Marigold operation which showed lower costs in 2012 compared to 2011. If you look at that really from the important costs driver costs per tonne, mine costs per tonne processed. And they really did that by focusing on operating for excellence efficiencies and productivities and getting the workforce that’s highly engaged committed to those opportunities and driving results.
A key is communication that each employee understands what we’re focused on the results we’re looking for and that we’re measuring those results and giving positive feedback over successful. So, anyway I look at it this way we’ve put together guidance for this year and we’ve done that by analyzing the risk for our production and cost profile. We have put in good mitigation and we have got our entire team focused on execution, so that we can hit that guidance and it’s pretty early in the year. But I can tell you remaining very confident in the guidance that we’ve provided. And so the operating for excellence is the opportunity for us to build upon that and finals incremental opportunities to do better. And cumulatively over the next five years I think it will have a pretty significant impact on our growth.
So, in terms of our operating for excellence there is a couple of things on culture and at Goldcorp we are telling our every employee we really only want safe production and really what we want people to focus on is what do we need to do to mitigate any other risk before we’re perform an act. And so we have had a really tremendous improvement in our safety performance over the last five years and we are looking to see that continue to grow. The other thing that our culture is again the focus on people, we really believe people make it happen and we want every employee engaged in understanding how they can influence our results. And the last point in our culture is focus on financial discipline that we really need to understand what the drivers are in those efficiencies and productivities and how to do we efficiently spend our money to get the best value to our shareholders.
And so in terms of the continuous improvement process the things we are focused on are how can we improve our efficiencies, what are the productivity opportunities to do something different than we were doing yesterday or last year. Opportunities to pull our costs down and reduce ways and a big focus is what are the risks of on costs pressure and production and what can we do to mitigate those risks. And the last thing we are stepping up again bit on is in the procurement side as we have grown we have got more leverage in terms of volume. So, we’re going to put additional emphasis on this on that this year and in terms of trying to find opportunities to leverage our buying power globally where possible and regionally where a global agreement doesn’t make sense.
So, today our focus in our presentation is a robust development pipeline. And if you go to the left side of the slide really we have executed some pretty significant growth in the last six years at Goldcorp and it’s been quality growth beginning with Marlin then Los Filos, Peñasquito in 2010 and Pueblo Viejo last year starting up to be the next important provider of cash flow in production. And that’s underpinned by our solid set of operations that’s really anchored by the Red Lake gold mines a world class ore body. So, moving to the right then we have got three really good mines under construction and Barry is going to walk you through the details about those. But when you look at it we are building a new mine every year for the next three years and these are high quality assets they are going to deliver a lot of value to the company. And then behind that we have got a number of advanced projects that are in feasibility phase that offer the next opportunities for our build and our growth.
So, here we have got a map of the Americas and you can see where these growth projects are. They go from Southern Argentina where we are building Cerro Negro, expecting our first production at the end of year to the far North of Canada where we are building the Éléonore mine in Northern Quebec. So, our focus in the Americas continues and these growth projects are going to deliver a lot of value to Goldcorp over the next three years.
So, with that, I’m going to turn it over to Barry we’re going to use the panel approach we have used in the last couple of years. So, we will be passing back and forth and jumping in, we will pause after each one of the projects or mines and give you an opportunity to ask questions and looking forward to having a good day.
Barry Olson - Senior Vice President, Project Development
Thank you, George. It’s good to be back and have this opportunity to give you a summary on where we stand with our projects. Two years ago we introduced Cerro Negro for the first time and at that time we have just completed a feasibility study and we were just commencing detailed engineering for Cerro Negro it was an exciting time. We saw some good potential in this property. And in the last two years we have gained a lot of knowledge on these veins and we been able to expand our gold reserves by 177% over the last two years. Today we have 5.7 million ounces of gold in 49 million ounces of silver in reserves.
It still remains a good exploration. There is a lot of exploration potential out there. We have got a nice program lined out for this year and the future years. And I anticipate we will see that even grow further than where we are today. We are positioned with this mine to be able to deliver this by the end of the year and have it become in the next cornerstone mine for Goldcorp. We went through a budgeting process last year and during this process we decided that we better update the initial capital for this project. Primarily because we had seen a lot of pressure on inflation in Argentina, that was impacting our initial estimates. And we had some other factors in Argentina that came about after the estimate was put together we call those the Argentine factors.
And so we updated the initial capital and that capital now stands at $1.35 billion and I will go through a breakdown on those changes in a couple of slides here. But and the other thing we did was look at that schedule again after we understood a little better on how things work and how people work and productivities in Argentina. We realized we had a bit of an aggressive schedule initially in that first look in the feasibility study for this project. So, we adjusted that schedule as well and that schedule slipped six months and now we are looking at production or I should say mechanical completion being completed towards the end of this year and initial production is will startup by the end of the year.
In spite of those setbacks if you will this project still remains a very, very excellent project and the economics are still quite favorable. We have basically two major activities going on onsite down in Cerro Negro at this time we have construction of the plant and the associated infrastructure and also development of not just one but three mines going on. This summary, this slide shows a summary of the meters that we have achieved so far up to recent times and those numbers alone probably don’t mean a lot to you. But what we did last year was realized that again our development schedule for these mines might have been a bit aggressive given the productivities and equipment that our contractors were using down there. So, third quarter last year, we readjusted our mine plans, and I am happy to say that since that time just about on a consistent basis week-after-week, we have been able to meet our plant advance rate in each of these mines. So, I think we have dialed that in pretty good, and I am really happy and pleased to see that coming together.
One gauge of success for us down there is this ore stockpile, you see that under the Eureka bullet there. The stockpile is important to us for a couple of reasons. One, as we are pulling ore out, we are able to look at reconciliations with this material back to the model that we are using to model these deposits. And the other thing is it gives us a gauge on how we are performing underground, and that stockpile is important for us, because as we ramp up Mariana Central and Mariana Norte we will be consuming some stockpile material in addition to the feed from Eureka to feed the mill. So, it’s important for us to maintain this number and I’ll show you a target of what we anticipate we’ll have by the end of the year in this stockpile, but I can’t say that the tonnes today are slightly ahead of what our plan is, and the grades reconciliations have been positive. So, when you look at a deposit like this, with the grades that we are projecting that gives us higher level of comfort that we have dialed that in pretty well, and it certainly de-risked somewhat our knowledge of this deposit.
As far as the construction, we are on schedule. We haven’t had any holdups materials as a result of the importation restrictions at Argentina put on us, put on the country about a year and a half ago. We have been able to get materials ordered early enough and do have them onsite. And it hasn’t impacted our schedule. Today, we have about 70% of the material we need for construction onsite, the other 30%, a lot of that will come out of the contractor construction supply that the work that we have leftover like small pipe being in some electrical cables and switches and things like that. So, we feel pretty confident that we won’t be held up with materials. We do have exploration going on underground. We have several rigs down there currently doing definition drilling – the infield drilling of the vein systems.
This is the timeline of the major milestones, construction and development activities at Cerro Negro. You can see that the next quarter of this year will be into full production at Eureka and in the fourth quarter we’ll be looking at as I mentioned that stockpile quantity of 280,000 tons of material. If we get there, we’ll be able to feed that mill at 400,000 tons a day. And so far it looks like we will be able to do that. The plant commissioning will start the fourth quarter and about a month after we get complete in commission will go into startup. So, it’s an aggressive schedule I will admit, but so far at this point there is no reason to believe we won’t meet that.
One thing that I should mention is the permanent power to the plant. You will see it scheduled to arrive the fourth quarter of this year. We just received a permit from the provincial authorities to allow us to build that line this week and we are looking at that schedule pretty closely and that is very, very tight. We are going to monitor that. That’s something we will manage very closely. But if it looks like, we need to and we’ll know in the next three weeks or so. We’ll permit generators to come onsite. So, we can bridge the time if there is a need from getting permanent power to site with generators for certain amount of time. But that’s something that we have not decided at this point, but probably by the 1st of April, we’ll have to make that assessment.
This is a display of how the initial capital costs were adjusted after our review process last year. We started with an $800 million initial capital and that’s moved up now to $1.35 billion. Most of the area that increased was in the external factors and the external factors, I could almost call those the Argentine factors, but within that amount was the requirement to buy local products. If it’s made in Argentina, now we are required to buy that product in Argentina. That was a law that came about after our estimates were put together in the initial feasibility study. It also includes inflation and we have seen significant inflation in both materials and labor. And we also put in a factor for labor productivities. It wasn’t quite what we thought. So, we made some adjustments there, and then in the whole course the scheduled delays were costed into that. That totaled about $340 million.
The next one is project refinements, and the bulk of that has just taken engineering from early stage as we have advanced it last year up to about 80% complete. As you go through that, you find things that you’ve got attuned. And so, that’s what that is. One of the big factors there was wind loads. We had to engineer to some wind loads that we did not anticipate earlier in the study phase. Then we have some camp and mine development work that added a little bit and some foreign exchange that gave us a little bit of a credit.
By the end of the year last year, our spent and committed was $800 million. That means we have $550 million left to spend on the project. Most of that will be spent this year. We do have a fine ore crushing system that will be put in after we get started, and that will spill into first quarter of next year. But out of that $550 million, most of that is yield contract construction labor, and some of that is supply and install for some materials like I said earlier some of the small piping and cabling and whatnot.
Here is a recent photograph of what the process facility is starting to look like now. You can see the structure of the mill building in the background between the two yellow cranes you can see a block in concentrate, that’s basically the mill pedestal. And then in between down below the larger yellow crane there is the first shell for the ball mill that was set in place last week. So, we are making good progress. We have been hampered a bit by the weather. You know it is summer down there. We do get some pretty high winds and that causes us to lose a little bit of time. We had about three weeks ago, winds of 162 kilometers an hour, down there, and of course, you can’t do much work when you got winds like that.
This is the photograph of what the tailings facility looks like. The ground has been cleared and grubbed and prepped. On top of that, we’ll be putting a synthetic liner. We are building this facility to North American standards. We build all of our tailings facilities as if we are in North America. In the center of that picture where it’s a little bit dark, you see a little bit of a valley there, that is where the dam will go. It’s not going to be a high dam, but across there we will install a dam and we’ll be able to use this base and then for tailings that it should take all of the tailings that we anticipate out of this project.
Here is this summary. These are the three pictures of the three veins, mines that we are developing and the totals of their ramps. We are making excellent advance as I mentioned earlier with these – with the advancement rate now. And one thing that we did change when we looked at that new plan is we looked at the experience level of the people and the equipment they were using and we made some adjustments as a result of that. We also made some adjustments to the development sequencing made and we eliminated a lot of standby time, a lot of time that people are waiting for things to happen. And we brought in some equipment, some rock bull team, equipment and some short period equipment. So, we have been able to pickup some efficiencies there and one of the big things we have done is we have hired a trainer the very experienced underground mine trainer that we used at Marlin under contract (Dowen) and he has been very, very instrumental in getting the people to understand their jobs better. So, I feel confident that we can only improve on our efforts there. The ground just to summarize is that generally good. We don’t have a lot of terrible ground to work through which can add cost to the project.
I put on just for your understating three slides, four slides here on what the mine plan looks like just to give you an idea. This happens to be Eureka the dark green work is what we have already gone you can see the ramp gets lighter green down below that will be that’s in the plans to complete. But that’s what Eureka looks like. This is what the Mariana Central and Mariana Norte veins look like the development work associated with those. Again there is some dark green lines in there that show development to-date. And then San Marcos, we haven’t talked about that much that will be a mine that will be underdevelopment in 2016. We haven’t done anything on that site at this point, but this is what San Marcos will look like.
Last year at this time I said that Cerro Negro was our most exciting exploration project and its still is as exciting as it was. We added 1.3 million ounces to the reserves and a lot of that was conversion of resource to reserves. And we have also added about 0.75 million ounces of recourse. So, we are continuing the growth here. We already surpassed our 5 million ounce acquisition base case model here, so we don’t see any end to adding reserves here. We still see lots of targets and we have a similar budget as last year for exploration. We are just continuing to convert our new resources into reserves and test new veins.
So, this is a plan map just showing the district the things I want to point out is that the green areas are areas where you don’t have post-mineral cover. So, those are the only areas where you can see the veins. This map compared to last year has a lot more red on it and the red are the veins that we see. The one important thing that we have discovered is on the bottom part of the map. And you see an area called Las Margaritas which we only have surface results so far but these surface results are some of the best surface results we have had. So, right now we have the west belt and the east belt and now there is indication that there is also veining outside those belts.
And we are going to take a closer look at the West belt and East belt and this is just as a summary of some of the drill results that we have had that went into the latest reserves and you can see many different veins with results in the one ounce range, which is always pretty good to see. And the other thing I want to point out is to the right our mapping has extended the Bajo Negr vein. We have a reserve on that vein, but it’s very small but we have almost tripled the surface extent of this vein and we will be working this year drilling to actually extend the reserves on this vein. We think that the potential is very good to add a lot the reserves on this vein.
Another one of the things that we tried to determine this year was whether one vein had more than one ore shoot and this is a grade thickness long section showing the Eureka vein and on the left is where – the red on the left is where the mining is going to be and what we are seeing on the right are the indications of another potential ore shoot. So, the Eureka area that we are planning on mining right now has 1.5 million ounces and so this is very important to us because it says that we can have more than one ore shoot on a vein. So, every one of our veins we have been drilling out one ore shoot and there is a potential for another one there, so that’s a huge upside.
This is a 3D view of the Marianas and San Marcos veins. One thing that it shows is the Marianas dip towards the San Marcos and the other thing it shows is you can see a gap in their shapes between Mariana Norte and Mariana Norte ESTE and between the San Marcos and San Marcos ESTE. Some of the drilling this year will be done to infill those gaps. Now we are going to see our grade thickness long sections of each of these vein areas. Starting with Mariana Central the black line shows where the 2011 reserves reached and then the red dash shows where we extended. This ore shoot is still open to the left, but it doesn’t look very strong right where it’s opened, but we think it still has some ways to go and overall it looks like we have pretty much drilled out this one ore shoot. One thing about this ore shoot is it’s a lot bigger than what we originally thought.
So, overall we are seeing better results in all of our ore shoots than we anticipated. And this is one ore shoot of almost 2 million ounces that’s pretty impressive, what you see on the right is a little bit yellow heading off and that could be the first indications of another ore shoot starting, so we will be chasing after that this year. Mariana Norte you can see where we added on a little this is – vein has some gaps that will be in filled and it’s still open further down plunge and we already have around 1 million ounces in this ore shoot. And this is San Marcos you can see where we have added there. You can see a gap there. This is also around 1 million ounces in this ore shoot. And then this is part of San Marcos. It’s something that wasn’t in even in resources last year we got it in into reserves and it’s still open. This is actually a nice, really high grade ore shoot that we will be following up on. So, overall, we have a lot of new targets. We have got a lot of expansion to do on existing targets. It’s still early days in the exploration here. Even though, we are building the mine and I don’t see any end in site for adding reserves. So, are there any questions?
Question-and-Answer Session
Unidentified Analyst
Thank you. Could you give us a sense of where you see your sustaining capital for Cerro Negro coming in and if that’s sustaining yearly capital? How much of that would be development and how many meters of development you think you have to do every year and what you think that’s going to cost you?
Unidentified Company Speaker
We have the number and I want to throw one out, but I’m being very cautious right now and let me check that and get back with you a bit, we do have that for you?
Unidentified Analyst
Have you ever – have you been able to refine your exploration model there to look at the areas where that is covered?
Unidentified Company Speaker
We’ve been looking at different options to see under the cover, but so far we haven’t found the one that works better than just drilling holes.
David Haughton - BMO Capital Markets
Charlie, its David Haughton.
Charlie Ronkos
How are you?
David Haughton - BMO Capital Markets
Last time, you were talking about getting a lot of success with the certain elevation looking at the boiling zones. Is that still holding true when you are doing the exploration for these things? Is this still Éléonore that is the best (indiscernible) or has your thinking changed since last year.
Charlie Ronkos
The basic concept hasn’t changed. That’s the general understanding for these types of systems, but these are very old epithermal veins, some of the oldest that I am aware of. And what we see is the tilting of the strata that makes it look like it has a plunge direction to it. But I think originally they were flat. So, but now we are chasing that plunge direction just because they were tilting.
David Haughton - BMO Capital Markets
Talking about these additional shoots that you get on a single vein, are they in similar kind of orientation is to the shoot that you’ve got the most amount of work on. Is there some degree of regulatory about them that you’ve noticed or is it still too early to tell?
Charlie Ronkos
It’s too early to tell.
David Haughton - BMO Capital Markets
Over to Barry, you had mentioned that you have changed your mining sequence. Can you just run us through the sequence that you see right now about which veins you will be getting first into production and how many of them will be mined simultaneously and some idea about what the grade might look like coming out from this revised mining plan?
Barry Olson
I don’t have the grades by vein, I think they may be summarized in the book somewhere, if not we can get that for you, but we have obviously we – when we acquired the property, we had development in the Eureka going on and that has continued as we broke into the Marianas last year. Those two are lagging Eureka. So, Eureka next quarter will reach full production and then the Marianas that will be ramped up between the end of this year and the middle of 2015 we will be able to sustain full production to be the mill without a stockpile.
David Haughton - BMO Capital Markets
Thank you.
Unidentified Analyst
So, given the labor inflation issues that you have had in Argentina and then how it’s translating to an escalation in your capital. What assumptions have you made in terms of operating costs particularly on a per tonne basis sort of prior to and what’s the new update now?
Unidentified Company Speaker
We have re-estimated the operating costs as well based off of what our knowledge is we hold those study we don’t escalate those typically over the life of mine.
Unidentified Analyst
Change in your per tonne assumptions…
Unidentified Company Speaker
Yes, per ton mining costs and milling costs and G&A have all gone up.
Unidentified Analyst
Can you give those figures to us?
Unidentified Company Speaker
Can I?
Unidentified Company Speaker
We can give.
Unidentified Company Speaker
We can historic and current per tonne mining costs, but we will give you guidance on an annual basis on a per ounce basis and that obviously those are inherent in the per ounce guidance and you’ve seen that go up from the original feasibility study and that is incorporating the various factors that Barry has talked about.
Unidentified Analyst
George or Barry, can you talk about the wind loads and what sort of impact you think that’s going to have assume that that’s something that you haven’t anticipated?
Unidentified Company Speaker
The wind, wind…
Unidentified Analyst
The wind 160 kilometers winds down there, both to the project construction and then on an ongoing basis?
Unidentified Company Speaker
In our schedules, we did put weather days, I don’t remember what they were per month but we did put some weather days where we wouldn’t be able to work. And I’m glad we did because we’ve seen some of those already. As far as wind loads and design obviously we’ve taken those into consideration on design that was some of the reason that the, I believe I put it into the scope change, costs went up because of the additional requirements for those wind loads. We are in the underground mine, so that’s going to help, I mean most of the work will be done underground and then everything else would be certainly protected. We have got covers over the crusher, the conveying systems and of course mills will be enclosed as well.
I know we’ve designed, I don’t remember what the kilometer load was, but we’ve designed for much higher than that. I worked down there for a couple of years in the past and I have seen some pretty healthy winds, not 162 kilometers now. So, I think that was an anomaly, but it can happen and when that happens, we just keep just can’t go upside you have rocks lying in the air and it’s pretty miserable.
Unidentified Company Speaker
I think the key thing on the wind is we’re closing the mill and the once the mills being closed, all the ongoing work, the rest of the year for construction is in controlled condition. So, it has been a bit of an issue to us putting up the structure you saw on the photograph and we have had some delays, but those will be behind us in the near future. But I think will better role along and move on to our next project Éléonore.
Unidentified Company Speaker
Still amazes me that we can build a mine in Central Quebec during the middle of the winter, I was up there three times in January and the temperatures were around 40 below. And in spite of that we are pouring concentrate hanging steel. So, pretty challenging conditions, but – and that has slowed us a bit on getting construction completed up there, but we’re making good progress. I will have to say that it’s going to be a sad day for me when I turn this project over to Chris, the team up there has been really great to work with and we have this saying we are raising the bar and frankly they are – they don’t stop it what they see a limitation is. They try to figure out how to you even get better than that? So, it’s been a pleasure working with those guys. And I tribute a lot of the success that we have had so far up there and then we will have in the future too that strong team. We struggled with this project several years ago. I just couldn’t really make it go, until the concept of two mines of came about. And what we have decided to do there was split this deposit in into two mines, we call it, the upper and the lower mine. And as a result of that, we were able to achieve a production to the mill at 7,000 tons a day and that will yield roughly about 600,000 ounces a year when we get into full production.
To be able to do that, each one of those mines will have its own shaft. So, we will have the capability of hoisting out of each the upper and the lower mine with its own shaft. So, we have got some capacity there. This mine too. We contracted an EPCM for almost a year and a half ago now and their first task was to take our estimates of some early estimates we had on the project and update those to a Class 3. That contractor completed that work mid-year or last year. And it took our capital up to 1.75 billion and I have got a slide to show you on that, where the addition, and the subtractions were, but we also when we started out – we started out this project. We were four months behind with permitting and we have looked at the schedule and we have adjusted a few things and frankly we have been able to keep that end date of first production in late 2014. They haven’t compromised anything by doing that. It’s just a matter of reprioritizing some of the work we had to do that was critical path.
Last year, we completed the exploration and shaft and I want to emphasize exploration. One of the reasons we have put that shaft in, in the first place was because it was very expensive and it required a lot of time to put holes into the deeper portion of this deposit. So, by putting the shaft in, we are now able we will be able here shortly to be able to put drills down on the 650 and the 690 level to start drilling in the lower portion of this ore body more efficiently. The exploration shaft was completed and sinking and we are in the final phases of conversion of this shaft to a production shaft. Basically, that’s installing loading pockets, putting in structural steel and the shaft and change taking out the Galloway and putting in the skips and fine-tuning our commission in the voice for skipping.
At this time, we have already pulled out 500 tons roughly of material out of that shaft and we are in the final stages of tuning that hoist. So, works going on really well there. As soon as we have enough space in that loading pocket, we start skipping, we can actually develop a little bit of room down there in the 650 and 690 as soon as we have got a little bit of space down there, we put your rigs down to drill that lower section. The exploration ramp is going really well. We have taken that to a length of 2500 meters so far. And we have been able to stuff in six drill rigs and they are drilling – they are doing definition drilling mostly on the upper portion of the upper mine, where we are doing some 25 meter drill centers. That’s going pretty well.
And then the production shaft, we have put in the surface facilities basically the hoisting facilities, the compressor rooms, the head frame, and the caller, the caller went down 70 meters. All of that work was done last year and we got set up to start full phase sinking on that shaft in mid December I believe it was we started our first round to sink that shaft. Today, we are down over 140 meters, so that job is going pretty well. And we are certainly benefiting from our knowledge gained out of the exploration shaft with respect to water. I can say that after our re-estimates of our capital, mid year, last year our spend is pretty well online with those estimates, so pretty good feel for that.
Here is a breakdown of the capital cost adjustments going from 1.4 billion up to 1.75 billion. You can see cost escalations. The big adder and that was basically due to some price increases from the first estimate to the Class 3 estimate. That was after about a year and a half of quotations, early quotations too and recent quotations. We also improved the cap quality and that added a bit, which is turning out to be, I think, a bit advantageous thing for us, because we are certainly being able to track some pretty talented people now to the project. And then also within that is some foreign exchange.
The second category scope changes pretty much relates just to buildings, in number of buildings, and also the size of buildings. And then the third one, external factors, this is kind of important, because when you do these projects, you don’t always have your permits. And so, the permits as they come in will have stipulations that perhaps you didn’t anticipate, and that was certainly the case here at Éléonore. We had to build our access road to site, for instance, as if it was a public road, that mean a wider road, then we were going to build and that added some costs.
Water treatment, first project in Quebec, this required to treat all of the water onsite rather than point sources. So, we have had to build a larger water treatment plant as a result of that. And then of course as I mentioned earlier that delays of four months getting started some of that cost is in there too. You can see on the right. We have spent $820 million and spent committed, I should say and these are numbers as of the end of the year. And we have $930 million left to spend. Most of that is underground mine development. Some of that obviously is construction contract labor for building the facilities. And there is probably 10% in there for equipment spare parts in first fields for the mill.
Here is a path to our full production. We are looking forward to third quarter of this year when we can actually go in and see the vein, we’ll be ceiling on the vein, but see the vein and get a feel for structural conditions. Also grade reconciliation, we’ll be able to look at the model and compare actual at that point. And then vein orientation, there is lot of information that we can get once we get in there. So, that will be exciting once we get into that and have a look at that vein.
The other following the fourth quarter then this year, you can see the industrial water treatment plant will be completed. And this is we do have a water treatment plant out there. And that water is or that plant is treating water from a containment pad that holds waster material that we are pulling out from underground. This water treatment plant will be a larger one and it will be capable of treating all of the water from the site. In Q4 of next year, we will be complete with the mechanical completion. The plant will be complete. We will start plant commissioning. And then about a month after commissioning will start that plant and that plant will be able to process about 3500 tons a day. And that’s about all the feet it will get out of the upper mine. And then it will take three years before we get the lower mine developed to a point where we can then feed the mill at 7000 tons a day. You have seen this ramp before this shows 2014 steady 3500. This is coming off of the upper mine. And then between 2015 and 2018 is ramp up of development work, and ore that will come out of the lower mine.
Here is a recent photograph of the construction site. In the distance, the shorter head frame is the exploration shaft, and then the taller one is the production shaft. And then in the foreground, you can see the mill building structure and yes, you can see that some people, three guys are on top of the roof. We have got roof panels being installed on the building at least the day this photograph was taken. This is another photograph of the mill building. Just below the crane, if you look to the left of the corner of the mill building, you will see a dark area there, vertical line, and that was the first sighting that went on to this building and that crane was actually being used to put that up. Just to the left of the red building is the concrete pedestal, and that’s where the mill will be placed. The mill is not onsite. It’s coming out of South Africa and it’s due to arrive in late April.
This is a pretty cool technique. The guys underground have come up. They have adopted this method of working two Jumbo drills side by side. These drills are automated. You push a button and they drill the patterns out, but they put these things side by side and they have actually been able to speed up the ramp development work. And then after blasting in (Mackay) now, we have got two rough bolters that come in and work again side by side bolting. As I said, it does speed up development of this ramp. The other thing it does is putting – is giving us a little larger opening for ventilation in the future. It will be less resistance through this ramp.
From the exploration side, we have reached a milestone that our geologists’ onsite are very excited about. Now, we are underground and we can drill underground, which means we can drill out the deposit officially and that’s the focus this year is to drill and fairly tight space through most of the deposit, including getting down fairly deep in the deeper part of the mine. We will be drilling at least 110,000 meters and we have already five rigs onsite and will be up to 8 rigs and we think we will be able to complete most of this drill program as the ramp continues to go down.
This is a long section. And it’s a great thickness long section that shows the hot colors or where the highest grades. And this also shows where a lot of our drilling is going. All those thin lines are where the drill holes are planned. So, this is all going to be drilled at 25 meter spaces, where you see the boxes. And the other to me exciting part of this is it if you can see the upper part of the mine, there is really one main higher grade shoot. And as you go down deeper we have intersected what appears to be a second and third shoot. So, we are very excited because there is a chance to get a lot more ounces per vertical meter deeper in the mine.
And this is just an oblique view of the same showing how we are going to be drilling from the ramp as it progresses down. And also at the same time, we are drilling from the exploration shaft which is the shorter gray line of the left and how we will be able to reach the deeper part of the deposit there. So, our geologists are very anxious to get this drilling done, get all the information together, so that we can make a very good and high confidence mining plan for this deposit. Are there any questions?
Unidentified Analyst
Just more on the Quebec side of things is there any comments just on the taxes and royalty outlook for the province?
Unidentified Company Speaker
As you may know there is a consultation process that’s just starting and I’ll actually be in Montreal next week to talk about the cost of doing business, and the fact that taxes were just raised a couple of years ago. And the impact on new investment of increased taxes etcetera, but it’s really hard to say what might come out of that. I hope and believe that the governments coming at it with an open mind. And once they hear from industry and if we come in and give them good solid transparent information, hopefully we won’t see a tax increase, but we just have to see how that goes.
Unidentified Analyst
Just a question on the capital of 1.75 billion, I am assuming that, that’s capital that needs to be spent say through the end of 2014, if that’s the case how much additional capital needs to be spend in 2015, ‘16 and ‘17 to get you to that full 7000 ton a day capacity?
Unidentified Company Speaker
You are asking about sustaining capital again, and I will have to…
Unidentified Analyst
Well, I don’t know is that sustaining or is that to get you to 7,000 is actual project cap, I don’t know how you divide it, but…
Unidentified Company Speaker
Yeah, it would be sustaining capital. But if I can say it’s not the end of ‘14 it’s until you hit commercial production which would be sometime in 2015 that the initial capital was cutoff and then we would start looking at it as sustaining capital, but it does, as we have shown you that mill ramp up slide for the last couple of years, we started a lower rate there, but it is commercial production and be very profitable production. And then the cost beyond that would be sustaining capital.
Unidentified Analyst
So, however, you divide that up sustaining, how much do you think that would be in those next three years, because I assume that it’s more capital than you would assume once you are at that 7000 a day run rate in 2018?
Unidentified Company Speaker
You are asking about sustaining capital beyond 2018?
Unidentified Analyst
No, 2015, ‘16 and ’17?
Unidentified Company Speaker
Okay, yeah.
Unidentified Company Speaker
I think we will get you that number offline or at the end of the presentation, but just to clarify, up to the point where we get first commercial production, the mill will be built, will have the upper mine developed in sustaining 3500 ton a day rate and that ramp up that you saw in the chart that Barry walked us through is really extra development in the lower mine that allows us to ramp that production up. So, we will get you that capital number that gets us up to the 7,000 ton.
Unidentified Analyst
Thank you. And just to follow-up, I mean, you have the slide at the beginning where you are talking about 600,000 ounces of production, what you see is the costs now for that production?
Unidentified Company Speaker
We got somebody on the detailed numbers, so we can get these for you. Alright, we’ll move on to Cochenour.
Unidentified Company Speaker
Cochenour is key to maintaining consistent production in the Red Lake district for us as the Campbell mine slows down, the Cochenour will be ramping up. So, the plan is to be able to accommodate the mills with this switchover, and we are looking at somewhere between 225,000 and 250,000 ounces a year of production out of Cochenour. And this will be called out on the haulage drift that to the, I believe, is the re-shaft services of Campbell mine, once we get into production. Speaking to the haulage drift, we are 70% complete on that drift and we are actually ahead of plan a little bit with that. We have completed about 4200 meters of development in that ramp. And about half of that has track lane, we are scheduling in three weeks to start lane in the second section of tracks in that ramp. So, progress down there has gone really well. On the shaft advance, it hasn’t gone as well as we thought and primarily it’s because as we are just slashing and driving this shaft, there has been considerable amount of rehab work that is required every time we come to an existing level. A lot of concrete, a lot of shoring up water to be diverted and it’s been kind of slow going, but in spite of that, it’s not going to impact our production, it’s not critical path. And we anticipate that rate to increase toward the end of this year when we get into virgin ground and free phase sinking again.
We do have currently two drills in the drift drilling in the area between the Campbell mine and the Bruce Channel deposit they have been down there drilling now for a while. And toward the end of the year we’ll be close enough to Bruce Channel, we’ll be able to put in some drill rigs into the drift, and then drill into the Bruce Channel deposit from that drift. I am looking forward to getting some of that drilling completed in that lower section of the deposit. This is, I should say that we did have a capital update on the scoping costs of this study last year as well. And this shows you the changes in the initial capital. We went from $420 million up to $540 million. The big change was, what we call, scope change here. And basically, the deposit as we envisioned initially was actually lower cutoff by a thrust than we had thought. That meant that the ore body was sitting lower. And when we looked at that, we made a decision then to deepen the shaft to as deep as the hoisting equipment would allow, and that’s basically taking the shaft down another 245 meters.
The other thing that was required, because deposit was a little further away, was lateral and some vertical development out of the 5100 level for the haulage drift level. So, that added about 11,000 meters of development work as well. So, that primarily is the bulk of that scope change and project refinements has some ventilation, additional ventilation that was not defined and some surface infrastructure. And the credit there pre-operating credit, we didn’t take into consideration an operating credit when we did the study initially, so that was new. By the end of last year, we had spent $230 million with $320 million left to spend. Most of that again is contract labor work to drive the drift and sink the shaft. We have a couple surface facilities to complete yet, there is an office building in the drive that need to be putting on and that’s part of that $320 million as well.
Here the milestones ahead of full production, in about a year from now, our work in the drift and work in the shaft will be completed. We will take several months to convert that shaft again to production and to do some development off of the 5100 level. And about a year after that in early 2015 we will be able to take our first tour out of Cochenour off of the 5100 level. We have lot of development work that will be required to access this deposit that will be ongoing and then full production will – once we get our secondary ventilation, secondary egress and our ventilation established in third quarter 2015, we will be able to declare production out of the Cochenour deposit. And then in the fourth quarter 2015, the production will start on the upper levels and that’s when we reach our full production out of this mine.
Unidentified Company Speaker
Cochenour is kind of in the same situation as Éléonore, where later on this year, they are going to have the opportunity to drill from underground, which is the efficient way to drill these deposits. And this slide shows a grade thickness long section, the two bands that you see horizontal bands are where once there is access to drill, the drilling will focus, and these are areas planned right now of first production. The other thing that shows is the red band that’s on the right side is where we have really taken all of our resource completions from. And you can see there is other bands and even though it doesn’t show them continuous, it’s because of lack of drill information. So, we see that there is the potential for multiple shoots in this deposit and we have only been concentrating on one shoot. So, we are optimistic that our original assessment of this deposit will remain the same or better. Are they any questions?
Question-and-Answer Session
Unidentified Analyst
Thanks. I assume your critical path item at Cochenour is the haulage drift. I am just curious, how many more meters do you have to go, it seems like it’s about 1800, and what kind of advance rates are you getting?
Unidentified Company Speaker
We are advancing pretty close to 40 meters a week between 38 and 40 meters a week. We don’t always achieve that. We had couple of transition zones we put in. And when we do that, the critical path advance on that drift slows way down, because we have got to do some other work, but once we get back into rhythm, we can maintain that pretty easily. As far as development ahead, yeah, we are looking at about 6000 meters, 6 kilometers total, 70% of that’s complete. And once we get to the end, then of course we start development work to ramp up to different levels ramp up and then establish another level off of that drift. So, there is a lot of development work that needs to be done once we get into that deposit.
Unidentified Analyst
Critical pathways mean for sure that drift is critical, but really getting the shaft down and the development to connect the two in the ventilation setup for all part of the critical path to get this into production.
Unidentified Company Speaker
And just historically, our budget was for 66% achievement, by the end of last year, and we did 68%. So, we are on schedule with the haulage drift and as Barry said and the slide showed we plan to have that complete in the first quarter of next year.
Unidentified Company Speaker
The concept was with Cochenour is not to use that shaft for hoisting. We would take material out to reach out. So, it’s really many materials that will take down the shaft.
Unidentified Analyst
Alright, just I was going to ask about the vent being the critical path but you’ve already addressed that. The second question was with respect to the fact that the ore body is a little bit deeper and farther away. Does that had an impact on your operating cost? I wonder you are going to have do a bit more rock bolting and more support work then you would have originally had anticipated and perhaps is there anymore additional haulage costs?
Unidentified Company Speaker
I don’t think it impacts either of those, really the impact is the timing of which we’ll be able to get ore out and the early thinking with the ore body higher up, we would had access and being into develop earlier. It’s forced us to push the exploration shaft or the deepening of the shaft and that’s going to impact the schedule a bit. In terms of operating cost no, it’s really about getting the development established and getting this setup for mining, our production rates remain the same. So, it’s really timing and that’s affected the schedule just a bit.
Unidentified Analyst
But you’ve already factored that into your schedule?
Unidentified Company Speaker
That’s correct. It looks like that’s it for questioners. So, we want Camino Rojo.
Unidentified Company Speaker
The projects group is we’ve had our eyes set on this project now for a couple of years since really early 2010, maybe three years. When we acquired this property in early 2010, it took several months to get our agreement with the (Eeyou) to allow us to go out and do some exploration on the property. That was done in late – completed in late 2010 and that drilling continued between then and fourth quarter of last year. And basically the results of that confirmed that there is a very large sulphide deposit underneath the oxide who is the known oxide deposit at the time and that certainly is put this into a different perspective than what we were anticipating very early in the project.
We did complete a pre-feasibility study mid-year and last year and that study was done just on the oxide only portion of the deposit. It was a very short lived. I think 4.5 year operation, six-year leach and it made money. And rather than pursuing that at the time, the decision was made to slowdown and evaluate and consolidate our infrastructure, so that when we put infrastructure in for an oxide, we would accommodate as well a sulphide deposit.
So, that meant needing some time to evaluate what this sulphide deposit will look like and ultimately on design what will be required in the way of capacities. So, we put that on hold. We know it’s there and so this year, I should say just as a few weeks ago, maybe now a couple of weeks ago, we signed an agreement with the Eeyou to allow us to get onto the property to do additional drilling and also development activity. So, that was a real breakthrough for us and we are excited to be able to get out and do some additional drilling.
And from that drilling, we’ll take samples and go into metallurgical testing. We’ve got a program defined that will take roughly a year to complete. It isn’t a simple Peñasquito mineral look alike let me put it that way where we can use the same parameters as Peñasquito, we need to evaluate this a little more in depth from a metallurgical standpoint.
So, that work will continue this year and in the interim we will also be looking at land acquisition. We will be getting a feel for what size of waste dumps we’ll need, what size of tailings facilities we may need and looking at the land and also water requirements. We currently have a water program ongoing and that should tell us, we are looking at two basins. We are not in the same basin by the way as Peñasquito, we are were in two basins that we are evaluating and based off Peñasquito’s experience obviously we are being very, very careful with definition of that water – that water source. So, that will become critical and those are pretty much the activities we’re looking at for this year.
This project has been a great exploration success, I am really excited about this one and part of the reason you can see in this slide, you can see the yellow dashed line is the oxide pit which within that oxide pit is 1.6 million ounces of gold and this is kind of a long section 3D view. So, you can see that the volume of sulphide that you have compared to the $1.6 million in oxide. It’s very impressive how much sulphide we have there.
This is a plan view, you can see the right, the gold, silver oxide area is where the oxide pit is. So, we’ve extended the sulphide 600 meters further away from the oxide and then on top of that, what we’ve done is we found another area that’s a lot higher in silver and its narrower veins, but it’s very high-grade and would easily be grades that you can mine underground. So, I am going to – those two heavy lines are cross section lines that we will be looking at, but first these are some of the results we’ve had in the bulk sulphide area. It doesn’t include the narrower high-grade silver that we hit further away from the core of the deposit. But you can see very large intervals of over gram to multi-gram and these are of course our highlight holes, but it shows it, that it’s gold with some silver, not much lead and some zinc. So, it has slight – it has less lead than Peñasquito, but almost double or triple the gold that we see at Peñasquito.
So, this is the first cross section and this is what the sulphide mineralization looks like, the pink lines are dikes, they are not veins. They look like – they could be veins, but they are just dikes so the mineralization cuts across those dikes. But we do see wide zones of continuous mineralization. It is open up plunge and still down plunge. So, what we’ll be focusing a lot this year is chasing it up plunge because that makes it more favorable in a pitting configuration.
And this is what the silver rich area looks like we have very sparse information on this part of the deposit. The shaded area is kind of the corridor that we have identified where we see these silver rich veins. The – you see the same dikes as you do in the more wide spread sulphide mineralization, but those dashed lines are where we see the high grade silver. And the silver grades are up to 0.5 kilo to 1 kilo of silver and gold grades are in the multi – low-multi gram range and with good lead and good zinc. So, there is definitely a zonation to the system. We are seeing the same kind of silver ratios over a vertical extent of 500 meters which is similar to any major silver deposit in the world. These are typically 500 meters vertical. We have a good strike length on them. You can see these solid grey lines that are drill holes. So, we kind of drilled down the vein so now we have to go back and drill across to really figure out how many individual vein zones we have but it looks like we have at least two or three major vein zones. So, this in itself is part of the deposit that if it fits into the pit it’s great it will be reduced the stripping, but it also could easily be mined underground. So, we are really excited about all the ounce potential in this region. It was way more than what we expected.
Unidentified Company Speaker
I would like to just add that although we have had really good exploration success, the share of the infill drilling in the metallurgical work we will focus on what is the potential here, what’s this look like. We have done some blue sky modeling and that work had showed us that this is going to be a really important asset going forward and so it’s a lot of effort is going to go into technically understanding this both geologically and from a mine development perspective. It will be big year for us. Any questions?
Question-and-Answer Session
Unidentified Analyst
Thanks. Charlie could you give us perhaps your sense of what an analog would be for Camino Rojo clearly not a Peñasquito type deposit what would you say it’s similar to?
Charlie Ronkos
It’s hard to say because it’s pretty unique, we haven’t come across anything else like you are right it has differences the Peñasquito, but as far as size of the system it could get as big as Peñasquito but maybe not quite.
Unidentified Analyst
And could you just give us a sense of what the mineralogy is and also talk a bit about sort of that transition from I mean just looking at these cross sections. You have something that look sort of lower grade bulky and then you are transitioning into this vein system and it looks once again just from the cross section like the bulk mineralization is confined to that Caracol formation was your vein seem to extend into that lowering (indiscernible) or is it just too early know what’s going on?
Charlie Ronkos
We do see mineralization in the carbonate section below the Caracol which just to explain everybody that Caracol is the same host unit as Peñasquito and the lower rocks are carbonate rock and the same set of carbonate rocks that we see below the diatremes at Peñasquito. So, we are seeing some mineralization down lower in the carbonate rocks most of it is in the same rocks it was – it is Peñasquito. The mineralogy is very simple, it’s valorite, pyrite some are single pyrite.
Unidentified Analyst
Thank you.
Unidentified Analyst
Charlie just a couple of things on firstly on the veins themselves you mentioned some grades but you didn’t mention how wide you think these veins are can you maybe tell us some of the dimensions of some of the veins you think might be there?
Charlie Ronkos
Our intercepts were in the range of at least 3 meters and up to 10 meters.
Unidentified Analyst
Would that be a true or would that be just an (indiscernible)?
Charlie Ronkos
I would say that it’s because of the drilling we don’t know what the (indiscernible) are yet. So, we some of them maybe very narrow, but some of them even the (indiscernible) will be mineable.
Unidentified Analyst
And I see you have done a quite a detailed or some initial work in terms of modeling what the resource might be here. Currently in the resources does not a very large amount in the sulphides I think, could you tell us what sort of ballpark this sector was seeing here would be in terms of tonnes?
Charlie Ronkos
I think you can just look at that long section and see what’s 1.6 and extrapolate out and you probably wouldn’t be too far.
Unidentified Analyst
Thanks.
Charlie Ronkos
And just to answer part of the previous question the interface between the high silver vein zones and the bulk sulphide, we need to drill closer on that to define what that interface is, we are not sure what that is yet.
Unidentified Company Speaker
Alright I think we will move on we have got one more to cover and then we will have our break, to El Morro.
Unidentified Company Speaker
El Morro, as you recall last year in April we had our permit suspended and for the reason that their government did not do a proper consultation process with the Huascoaltinos or the indigenous groups near the site and under as required under ILO 169 which surely had adopted. So, we are in a suspended phase right now. We didn’t have our permits revoked. They are just suspended. And in the meantime we are looking at optimizing the project and we have got a number of things that we are looking at there. Is this a project in our five-year plan? We have a got a number of hurdles to get over a couple of which are power. We need to secure a power source and of course the permitting. And so I just to kind of summarize real quick here there is not a lot that we are doing on this thing at the moment. It is considered long-term strategic asset for us. And we do anticipate at some point moving this thing forward. But in the meantime it just recognizes this is one of the largest one of the highest grade copper gold deposits undeveloped in Chile and one of the higher ones in the world. So, it’s a matter of time and we will be able to fine tune the economics and put something for it, it makes economic sense for us, so it’s been on role.
Unidentified Company Speaker
Any questions on El Morro? Hearing none we are scheduled for a 15 minute break. We are pretty much on schedule, so be back in 15 minutes. Thank you.
(Break)
George Burns - Chief Operating Officer
Okay. We are going to get started again. Before we move on to the next section, I thought I would just point out for those of you in the room. In the back of the book, we do have some statistics and other supplemental information that we won’t be covering. So, there is some cost per tonne mined and milled and reserved data in the back. All that’s really focused on historical data, I think we have got the last two years worth of cost of information in there. A forward-looking stuff, we typically don’t give you, but our CFO, Lindsay Hall is going to spend a couple of minutes and give you some high-level guidance in terms of our cost relative to some of the questions earlier. Lindsay?
Lindsay Hall - Chief Financial Officer
Thanks George. Well, I am going to take less than a few minutes to describe it, but I think there are some questions from the audience about Éléonore cash cost and sustaining capital. So, we’ll give you an all-in sustaining cost number that we see currently with say we will start with Éléonore. And I am using a five-year average for the years kind of 2015 to 2019, which is the ramp ups kind of completed. And we have an all-in sustaining cash cost, so that includes the operating cash costs as well as the sustaining capital. Éléonore is an underground mine and we have something like $800 an ounce at that mine, Éléonore.
Moving to Cerro Negro, which is the ramp mine we are building and we are ramping down. The all-in sustaining cash cost for the period kind of 2014 to 2018 again getting through the ramp up of Cerro Negro. The all-in cash cost would be $600 and I am quoting an average over those five years that I referred to. So, the average for Éléonore was $800. The average for Cerro Negro would be approximately $600 an ounce. And that’s the kind of averages that we are forecasting on those two mines. That’s all-in sustaining cash costs. Hopefully, that addresses the questions that was asked by the group. Thank you.
George Burns - Chief Operating Officer
Okay. Now that we have finished discussing our development project portfolio, we are going to switch the focus to our current operations. And here you can see again the map of the Americas and the list of our operating mines. And so just kick it off, Pueblo Viejo is up first and Eduardo will walk us through that.
Eduardo Villacorta - Vice President, Central & South America
Sure. Pueblo Viejo, our most recent operation then this is a large low operating cost line with an outstanding safety record doing construction. We are talking about 20 million man hours without a lost time incident. So, it’s worth mentioning. Commercial production declared in January 2013, with a strong contribution for Goldcorp in the following five years. Ramp up on track. It retrofits work very well considering these are the largest lead line autoclaves in the world, which makes it a big success. Expected completion of modifications on first half of 2013 and expected ramp up to full production by second half of 2013.
Power, overall project, is 75% complete. Power agreements are in place. More than 60% of towers for the transmission line have been erected. Pending ones are right on schedule. We have been connected to the grid since March 2012 and the entire project should be ready by the end of third quarter of 2013 also. JV is working well. We have quarterly joint venture meetings onsite on project review between both parties. In fact, next week, George, myself, and other members of the technical teams are going down there to review the project in detail.
The team down there has a very well planned strategy to approach communities, authorities, and stakeholders. As we speak, Pueblo Viejo management is having discussions with government to set an agreement on what the tax contributions going to be further on in the project. So, again, this is great asset. It’s a long-term producer and we are looking forward to be part of this long-term relationship with Barrick. Any questions on Pueblo Viejo?
Question-and-Answer Session
Unidentified Analyst
I apologize, I am sort of going over some stuff that we went over last week when some of us were onsite, but I must say I came away not getting the full picture on what the capital will be for this year, I mean, because you have got the power plant project, you have got sustaining, and you have got where I assume some amount of capitalized stripping, because you are mining at a higher rate than you are processing. So, would it be possible to get the number for this year for the total capital, whether your share or total project for PV?
Unidentified Company Speaker
Yeah, maybe I can take that Eduardo. I don’t want to get ahead of our partners on disclosure on this (Victor). We have provided overall capital guidance for Goldcorp of $2.8 million, of which about $1.1 million is sustaining and the rest is new project. But as we heard down there, those numbers weren’t available, and they are the operator. And so we are going to stand behind them in terms of the level of disclosure, so…
Unidentified Analyst
Could you ask them to give back to me?
Unidentified Company Speaker
Okay. It doesn’t look like we have any other questions in the room. So, we’ll move on to Peñasquito. Horacio?
Horacio Bruna - Senior Vice President, Mexico
Good morning. Last time, I was with you, I was in charge of Canada, U.S. and now I have replaced George in Mexico. I have been in Mexico six months. And obviously, my main job is Peñasquito. And we are going to talk about it now. It’s by far a great cash generator. It’s the biggest gold mine in Mexico. And we have been focused up to now mainly in the ramp up. Right now, we are for this year considering the 105,000 tonnes per day. And we are planning on trying to increase that by all three as we are working in all our company and focusing strongly on blasting rock fractures. This is in the beginning of the chain of production.
So, if we manage good fractures in our rock, it improves our crushing it improves our milling, and the whole process goes better, and we are seeing that everyday. We are working in our shovel productivity. We have very good operators that have become trainers for the rest. And we have increased from 4000 tonnes per hour initially. Now, we are in 7000 tonnes per hour in some of our shovels. And those are some examples of how well three years working overall in all our company. We are trying the biggest trucks available in the market, 360 tonnes. Those come with light boxes. So, we are carrying more loads and less iron on them. And this is really making a big difference in Peñasquito. My main concern is people, and we have a great general manager there now that’s been about six months. He is doing a great job and we are putting in very experienced people working with them. So, we are very optimistic of how Peñasquito is evolving.
On the water, the water supply in the short-term is pretty much taken care of by the drilling done in the surroundings of our pit. We have 44 wells in Cedros basin, and the surrounding wells in the pit area are enough for our needs of 105,000 and up to 110,000 tonnes per day. So, we have the short-term covered. And in the longer term, we have a very strong team working in the engineering and 10 different alternatives for long-term water resources. Part of that has been drilling the Matamoros, which is part of the Cedros basin and that has been very successful and that will allow us to increase production. So, we are very happy with those results. And this strong team is also looking at alternatives that will use more efficiently the water of our tailings down, and other alternatives that are being looked at. We are expecting results by the end of the year in this, and a first strong report at the middle of the year.
This picture shows the small square is the mine site, where the pit is and where we have all our drilling water wells surrounding the pit. The bigger square to the left is the Cedros basin, where you see the wells that have been drilled there and the ones that are projected. And further up north to the top left of the photograph is Matamoros. And Matamoros has become a very good basin and water resource, and it’s in line. So, all our water system there, the engineers are working on now will tie into what comes from Cedros making it a straight pumping system. And that’s the work that is being done right now. Pumping pipes, engineering for the electric system, that’s all what’s going on right now at this time.
Unidentified Company Speaker
Maybe if I can jump in for a minute Horacio. So, just to step back and talk bigger picture the inset drawings for the open pit in the Vergel and Torres water fields that we have been pumping out since start up represents just a couple of percent of the Cedros basin, where we have the permits to pump water. And so that photograph kind of shows the other areas within the basin that we have been doing exploration in Matamoros is in fact a robust area and a focus for us currently. We found a number of our exploration wells are robust producers, and we have got the ability to expand those into production wells. So, as Horacio stated, we are moving forward with engineering to detail that out and agreements in order to get all-in infrastructure put in. So, our confidence is increasing in terms of availability of additional water sources within Cedros basin, where we currently have the permits to achieve our full production plans.
Unidentified Company Speaker
And Matamoros and Cedros are in the same basin and belong to the same water rights that we have today.
Unidentified Company Speaker
Maybe just a little bit on the engineering study and we are on track to deliver that tailings and water study at the end of the second quarter. We focused also on how can we reduce the amount of water we require to operate in. That’s moving along right now. It’s looking favorable the thickeners would be a good solution and a good part of our long-term strategy, the paste in filtering are less favorable at this time. But again, we’ll wrap up that feasibility study at the end of the second quarter and that’s going to set the course going forward to how we sustain the operation over the plus two decade mine life.
Charlie Ronkos - Senior Vice President, Exploration
So, Peñasquito is really our unique deposit, it’s a world class deposit. And we created our own geologic model of this deposit. And in our model, we envision copper, some copper depth and the way that we envisioned the model was we would drill a hole. And once we hit, Skarn mineralization and I’ll explain what that is in a minute. And we go into porphyry, where the copper would be and there would be a sizable porphyry copper deposit. Well, late last year we had the opportunity to test this model. And so we drilled our first hole and we hit Skarn and we envisioned that Skarn would be 20 to 40 meters thick, the way it is in the rest of the district, where they do see Skarn and then go into porphyry. We drilled Skarn and we drilled more Skarn and we drilled more Skarn and we drilled hundreds of meters of Skarn. And in one hole, we had a total of 700 meters of Skarn, which is an exceptionally large thickness of Skarn. A simple definition of skarn is it’s a rock it’s been baked by a magma or intrusive. And in our case, we define a Skarn that it’s been baked enough to form certain minerals that are called garnets. So, this is, we are very excited about getting all the Skarn and then we went into the intrusive, where we thought the real deposit was and we are disappointed, because intrusive itself was very low copper, but it had some molybdenum, visual molybdenum in it.
So, we are excited about the Skarn, and so we drilled a few more holes and we were getting the biggest thicknesses kind of between the two pits, which are formed by the mineralizations and (diatribes) in these pits, which are breccia bodies. So, this is a plan view of, first of all the kind of pinkish shaded area is where we envisioned the Skarn to cover right now. And you can see it’s below the existing pits. And within the area that red line that you see on the edges, the ultimate pit boundary. So, it’s all within the boundary of the open ultimate pit, but it is deeper than the existing pits. So far we have drilled a handful of holes. We’ll be looking at two cross-sections, where we have some results to give you an idea of what we think the size could be of this. One will be East-West section going horizontal and one will be through the two pits, but one thing we see so far is that we drilled our first holes, where we saw indications of higher copper, but from the visual results of hole so far, we don’t think that, that’s the best place, where we see copper mineralization.
So, the first section is going East-West horizontal section. The distance so far we see East-West is about a kilometer, and then the distance North-South between the two pits is two kilometers. And here you can see some of the results we have so far, the pink-shaded areas are the Skarn. And one thing I want to point out is that these results, the meter just cumulative, so there is several horizons in there, it’s not one continuous horizon, but you can see that in right in the middle, we have one long continues – are several horizons of almost 500 meters cumulative and thickness of about 0.5% copper, but then within that, we have higher grades of 0.7%. And you can see that the mineralization has good copper grades, but it’s also associated with zinc and it has gold and silver in it. So, along this section, the holes that we show so far, the mineralogy is very simple, chalcopyrite, some SEM sphalerite and pyrite, but between the two holes that I am showing the results on we drilled another hole and we are starting to see bornite, which to me indicates that maybe you are looking more at the core area of the system, which would in theory be aligned between both pits would be the core area of the system. But it is the open, still we haven’t closed it off, but we can see a kilometer of width so far.
And then you can see on this section that goes along the pits that we do see Skarn mineralization at or slightly above the pit bottoms and we have drilled another hole between the Peñasco pit, and the hole where we are showing the results, and this hole does look a lot better grade. And we know historically that the Peñasco pit is higher grade in gold than the Brecha Azul pit and all the drilling and results we have so far is around the Brecha Azul pit. So, we think there is potential for the gold grade to actually come up some more. So, I am really excited about this. It’s kind of not your Peñasquito style thing, but it shows that we have a zonation in the system, it’s a huge system, and the Skarn potentially is the biggest part of the system. Are there any questions?
Unidentified Company Speaker
I might jump in before the first question, Charlie is really excited about the exploration, but I am equally impressed from a engineering and operations perspective. If you look in this cross-section in the yellow area, there is a green line that outlines the ultimate pit for both Peñasco and Brecha Azul. And if you just take a simple, extend the right edge of the Brecha Azul pit down on the same slope, the high wall and do the same thing on the left side with the Peñasco pit. You can see that the mining we are going to do in this ultimate pit is going to pre-strip, a big chunk of this mineralization that Charlie has talked about. So, thumb-suck strip ratio with this thing is going to be low and it’s pretty darn exciting. And when you look at the accumulative value of the copper, zinc, silver, and gold, this is a really important discovery and we have got a lot of work to do. It’s early days and from an exploration perspective to see what the size is and to start advancing metallurgy and to understand what this means, but it’s really impressive discovery, I think it’s going to be really important for Goldcorp over the long-term. So questions?
Question-and-Answer Session
Unidentified Analyst
Hi, just a quick question on the mineralogy that you are seeing there, is there any arsenic or bismuth minerals in it or is it you think it’s going to be fairly clean?
Unidentified Company Speaker
So far, it looks really clean.
Unidentified Analyst
And just quick follow-up, are there any analogies in the district or worldwide maybe that you could point to is to say what maybe what we – how we should view this, I mean, that I think there is some mining in the area, I think that’s similar deposits, right.
Unidentified Company Speaker
There are similar deposits in the area of Skarn, but none of them show the thicknesses that we are seeing. And then this is some of the biggest thicknesses that I know of. So, it’s really a strong system and a big system.
Unidentified Analyst
Great, thanks.
Unidentified Analyst
Just two follow-up questions on the geology there, what is the composition of the intrusive and when you are talking about the Skarn horizons, because it mean that those areas in between are just un-mineralized Skarn or is it the original, I guess, assume it’s the carbonate in between or also can you just sort of describe a bit more what that inter-layering is like?
Unidentified Company Speaker
The inner layering is split out, because it’s mostly marble and we get varying degrees of garnet within the marble. And that’s once we get to a certain amount of garnet then we call it Skarn and the intrusive is a monzonite, right. It’s classic porphyry monzonite kind of intrusive. And we see all the textures of porphyry but it’s just weak.
Unidentified Analyst
Thank you.
Unidentified Analyst
So, for 2013, you expect a bit of a drop in grade, gold grades, should we expect a drop in sort of lead, zinc, silver grades as well.
Unidentified Company Speaker
Yeah, the grades at Peñasquito are down this year relative to last and down significantly relative to the rest of the five-year plan. And essentially we are moving into a new phase. So, we are higher up in the ore body and stripping our away down. And it’s a low production year relative to last year and relative to the five-year plan on all the metals.
Unidentified Company Speaker
I just want to add a couple of things that our goal for the first half of this year is to get our wide-space drilling done. So, we can get our arms around this and get a feeling for size. So, that’s what we are going to be focusing on.
Unidentified Company Speaker
Alright. No further questions. We will move on to Red Lake. Chris?
Chris Woodall - Vice President, Canada & US
Good morning all. It’s time for me to start it with Goldcorp, but Red Lake is obviously one of our cornerstones of operations. And we really do have a strong 2013 production plan. We are really taking into account, de-risking the operation. So, we don’t have to deal with some of the seismic activity that occurred last year in 2012. So, what really it comes down to is we are going to be undertaking only one de-stressed slot blast this year, which will occur during the later parts of 2013. And it really is only required for 2014’s production.
So, the total production there that’s de-stressed slot blasts where we got chased out last year with seismic activity is less than 1% of this year’s production profile. So, that’s how we have de-risked the operation. At the same time, we are going to be lot of focus on how we can improve our efficiencies at the operation. So, we are going to be using a lot of the continuous improvement ore free techniques like very similar to the jumbos you saw earlier on at Éléonore. There that will allow us to utilize automation. They continue to drill either blast stalls and development heatings or long-haul drilling when people are not at the workplace. So, we are looking at those technologies that are existing and try to improve the efficiencies overall the business. The other side obviously with Red Lake, it is a robust low cost operation. And it really has some really strong exploration potential going forward, which Charlie will cover a lot.
Right. In the second slide up here really is just let people understand why we really focus on the high-grade zone over like it is where you will see only less than 20% of the tonnes from Red Lake comes from the high-grade zone, but nearly 50% of the ounces turn out from the high-grade zone. So, all our work with de-stressing, de-risking has been tied in the high-grade zone at Red Lake. As a comparison, you will notice that Campbell, it actually accounts for about 50% of the ore coming out of the total camp and results in just over 25% of the ounces.
The next slide really to show you the whole Red Lake gold mine camp, as it sits right now, the long section, the pale gray areas are what has been mined out previously. And the areas in color, the blue, the red, the green, the purple, yellowish color, they are all the mined all zones that we have to continue mining with. As I mentioned the high grade zone is at the very bottom of the mine, it’s in the purple. That’s the area we spend a lot of time developing and keeping under control with the stress. One of the things to note just if it was benefit, the development ramp in the high-grade zone right now is about 2.2 kilometers below the surface. And you notice on the left hand corner, bottom corner of this slide, you can see where the Cochenour-Red Lake Haulage Drift will come across from the Cochenour property and then go up the Reid Shaft for its production.
In the next slide really is a table that shows the budget grades that we expect in 2013 versus the reserve grades for those all zones. So, there are really only two I will look at here is the high grade zone, which is the top line. You will notice that the budget grade is just slightly above the reserve grade. And really that’s tied to where we are mining and what we are going through. You will notice in the Campbell area, the budget grade for 2013 is slightly lower than the reserve grade, and that’s really tied to our mining sequence. And what we are trying to do is do a lot of work in continually improving our dilution control in that part of that mine to actually increase the grades that we mine.
And just in closing before we go on to the obviously exploration, I have been in this role for just under two months. Really, I am excited to be part of the team coming through, not just for the Red Lake, but also the other four operations in the region. We have some really strong people at both Red Lake and the other operations who have some really good ideas of how we can improve the operations and the efficiencies in their current operations. So, my excitement is really be able to get the people to step up to get those ideas out there and let’s see if we can improve the efficiencies totally in all our operations than the Canada U.S. region. I will pass it to Charlie now.
Charlie Ronkos - Senior Vice President, Exploration
So, this time last year, we were looking for the fault offset of the high grade zone, and lots happened since then. We found the fault offset, but we also found a new zone that we called the NXT zone. And we have drilled enough to get a resource, but we did not get any of the offset or NXT zone in the reserve. So, the focus for this year is to get as much of that as we can into reserves and trace the zone a plunge along with testing the multitude of other targets we have in the Red Lake area.
This is a 3D sort of view. The red to the right is the high grade zone. And you can see where it ends and the multi-color with the red on the bottom is the NXT zone. And the red on the bottom is supposed to indicate the extension of the high-grade zone. And then the different colors for the NXT zone are different sheers that we see within that zone is both the high-grade zone and NXT zone are wide open down plunge and up plunge. And a lot of our focus this year is to see, is to trace it up plunge, because going up plunge it’s heading towards the bulk of the main Red Lake deposit. And we think there is an opportunity there that it can actually get thicker and higher grade, the further up plunge it goes. And on this slide, it also shows an exploration ramp that’s being worked on right now to actually get in and see exactly what it looks like and understand better the controls of this new discovery. And we should be getting there sometime then in the first half of this year.
Unidentified Company Speaker
That drift is on the top of the slide. It’s a green line labeled 47-2 EXP, so it’s a drift over from the high grade zone workings into the next zone.
Charlie Ronkos - Senior Vice President, Exploration
So, this is another view kind of the same area showing the high grade zone, the NXT zone. And then it’s also showing another zone that we hit right in our workings to set our drill stations. So, we not only have the NXT zone, but you can see it that end of that squiggly line on the left there is a red line and that’s the new zone. And in plan view, you can see all three views on, I mean, in section view, you can see all three zones on the right side. And you can see that they are all fairly parallel to each other. So, they are all new zones parallel to each other and it’s still really early days on these zones. We are just getting started on that and a big focus of our activity around the high grade zone will be on extending these new zones.
And this is a plan view that shows in red kind of all of the zones of Red Lake. You can see in yellow on the bottom part of the slide where the NXT zone fits in with the rest of this deposit you can see where we have other targets. You can see in the (tram) level where we have hit gold mineralization and where we are going to follow-up on that mineralization the tram is out to about where the question mark is and then often the upper part of the slide we are getting good results around the HG ounce and some very high grade around there, so that kind of gives you an idea of all the different targets that we are looking at and all of the upside potential that’s still left in this very large district. Any questions?
Question-and-Answer Session
Unidentified Analyst
Thank you. Charlie that new zone that you showed I think it’s in the previous slide that you intersected in that ramp what kind of widths and grades are you getting there. I know you described that as being similar in nature to the high grade zone or more like the NXT or what does that resemble?
Charlie Ronkos
It doesn’t resemble the high-grade zone and it’s away from any other mineralization that we have found so far. So, we are really not sure what to make of it. In the actual ramp it’s very high grade you see the gold that’s showy stuff. But it’s so far we have just drilled some short holes around it. We really need to get our arms around it to figure out what it really means but all we can say now is that it’s a brand new zone that we didn’t know about and it’s away from any known mineralization.
Unidentified Analyst
Have you named it yet?
Charlie Ronkos
No, we haven’t. We will soon.
Unidentified Analyst
Okay. Thanks.
Unidentified Analyst
Charlie what are the principal differences between the high grade zone and the NXT zone sort of geologically and then as it relates to widths and grades?
Charlie Ronkos
Right now we are the high grade zone is wider. We see pockets of similar grade as the high grade zone in the NXT. We just don’t have enough definition to see the continuity of these pockets of high grade, but its multi-ounce stuff, slightly narrower. We don’t understand what the strike dimension is on that but we are going to get a lot of that information once we get the drift over there.
Unidentified Analyst
I guess just following up on that and one of the sections it looks like is there you said you are going to focus up plunge, but is there a possibility that the high grade zone the extension of the high grade zone converges with the NXT zone or is that sort of...?
Charlie Ronkos
Yeah it appears to converge with the NXT zone around the 57 level. We haven’t drilled below that so we don’t know what happens down plunge we have years of reserves in the high grade zone, so it’s not our primary focus, flexibility is our biggest focus and I think this helps a lot with our flexibility in our mining.
Unidentified Analyst
Thank you.
Unidentified Company Speaker
The other difference between the NXT zone and high grade zone is probably mining approach and the NXT zone is deeper, it’s more likely going to be bulk mining long haul versus the underhand overhead in (indiscernible) field that we do in the high grade zone, so a lower cost mining. Alright no further questions we will move back to Horacio on Los Filos.
Horacio Bruna - Senior Vice President, Mexico
Los Filos is a mature mine, I started out in Los Filos when it was ramping up an I am happily surprised of what it does today, it’s 340,000 ounce mine steady constant, reliable, it’s one of our great assets. Its safety performance has been incredibly good with a very bad start years ago, it’s one the bear which is our trough year as a company for years it’s showing the best leadership in safety. So, it’s really we have a lot of pride in Los Filos. And its underground mine that we integrated to Los Filos. Today we are building a new second leach pad that will allow us to leach all the future ore that comes out of this unit and it’s going well. We are also improving our camp conditions and we have just began flying our people in and out as a safety measure in our company, all things that have improved the quality of life of our workers in Los Filos. And as part of our porphyry we are also working with improvements and seeing expansions for Los Filos mine because we are talking of plus 7 million ounces there. And we are seeing ways of expanding to be able to accelerate the mining of those reserves. So, it’s one of our really good assets.
Unidentified Company Speaker
This past year at Los Filos our goal was to expand the Bermejal Pit as far as we could where we saw it open to the north and to the west. And we did that with wider space drilling and what we ended up with was an addition of 3 million ounces into resource for this past year. So, our goal for this year is mainly just to infill what we drilled as a resource and convert that to reserves. This is a plan map just showing the resource pit for Bermejal and the blue dots are the infill holes that we will be doing to convert those resources and we know that that isn’t the limit of the mineralization, it continues to the north and we will keep stepping out and drilling that over the years. The other thing that this map shows is those red and green blogs to the right and below the Bermejal Pit those are all soil anomaly areas that obviously show the mineralization expanding away from the existing pits and that’s another area that we’ll be testing so we see potential for the Bermejal deposit to extend further to the Southeast.
Are there any questions?
Question-and-Answer Session
Unidentified Analyst
What prompted you to start flying your workers in and out? What was the catalyst for that?
Horacio Bruna
Most of our supervision lives in (indiscernible) and there were quite a few issues in the road coming in and going out. And by constructing this air strip and flying them in and out that has disappeared and has brought a lot of tranquility to our people.
Unidentified Analyst
(Question Inaudible) you really like working in Mexico, it’s great country, very stable, very supportive government, great workforce and obviously as you’ve seen today a lot of geologic opportunity left. But one of the issues clearly is security and there have been challenges there and so one of the ways we’re dealing with it not just at Los Filos but in Mezcala is to fly more of our people because the areas where the criminal activity tends to take place is on highways. And there is a lot of carjacking and road blocks and kidnapping and things like that. And fortunately we haven’t had any serious incidents with our people, but we’re trying to stay ahead of it. And in longer-term there is a lot of excitement in the country right now with the new President, Peña Nieto and some things that he is doing to try to improve the security issues. And so we’re certainly happy to see that work and we will continue to work with the government. We’ve got very good support from both federal and state governments in terms of these issues. But there are challenges and there is no question about it and so we have to address them.
Unidentified Company Speaker
We bought a (indiscernible) which is in the process of starting its operation pretty soon and two Dash 8s for Peñasquito for the same reasons that Chuck has just described and I’ll tell you the quality of life for our workers when they used to take almost a day traveling and today they can do it in an hours is important and it makes enormous difference to them, so they’re delighted with this.
Unidentified Analyst
So, in the technical report you just released you broke down sort of a range of recoveries that you expect from, I am just wondering if you can give us more clarity on what you expect for each and then what it costs processing sort of for each one rather than just the blended processing cost?
Unidentified Company Speaker
We don’t guide that level of detail. Most of our ore at Filos is run in mine leads. So the underground and some of higher grade ore out of the pit goes through the crushing circuit and we definitely get higher extraction rates as a result of that. But we are not guiding that level of detail you’re looking for
Unidentified Analyst
Not even on the recoveries.
Unidentified Company Speaker
As to recoveries we are just not doing it on a different on each rock pile.
Unidentified Company Speaker
Any other questions?
Unidentified Company Speaker
I thought it was…
Unidentified Company Speaker
All right I am not seen and we will move on to the next Marlin mine. Eduardo?
Eduardo Villacorta - Vice President, Central & South America
Some of you heard me talked about Marlin before and this is one place, one operation that really makes me proud to talk about due to all the success that we’ve had there. Company important low operating mine and significant cash producer for Goldcorp, the main activity to highlight here on this slide is the backfilling of the pit with filtered tailings from the environmental perspective this will work great and in line with our long-term plans for closure. And this will also allow us to send a commitment on best environmental practices with our communities, authorities and other stakeholders. So, in addition to that backfilling the pit with filtered tailings also provide us the opportunity to create more space for future reserves re considering its potential and surrounding targets around the Marlin district. You’ve heard about operations for excellence what have done at other properties and Marlin is no exception here. So, I would like to highlight a couple of examples here.
Since 2008 Marlin has increased its silver recovery on 30%, mainly by optimizing our reagents and also the Merrill Crowe optimization. This helped us bring value to the mine through our byproduct here. Another important element to mention porphyry here is that since Marlin became an underground mine only we have been implementing several programs actually to improve productivity and utilization of mining equipment, also trying to implement new programs on prevented maintenance to actually increase availability for the equipment and this green place as we speak. So, again this has been a great asset for us, we are hoping that Charlie’s team has even more success than we have seen until now and help us maintain the operation with the prosperity we have seen until now and the fantastic team that manages Marlin through all these years.
Unidentified Company Speaker
Charlie?
Charlie Ronkos - Senior Vice President, Exploration
Yeah Marlin the exploration focus has been over the years more closely to the actual Marlin vein deposit and we have been successful in finding additional smaller veins around the main vein like the Delmy and we are now working on Coral. We’re seeing a lot of potential in West Marlin where we’ve added some reserves there over the past year. So, right now we stand at about 1 million ounces of reserves. But one of our biggest excitement there is that we now have the permits in social license to the test Los Chocoyos target that we’ve been talking about which you can see on this slide in the left upper corner, Marlin vein is right in the middle of that picture in the left upper corner of map. And Los Chocoyos is the furthest vein to the southeastern. This map is a contour of soil results in that area it shows a good strike length and it has a good continuous soil results. But to the left these the veins go under post-mineral cover. So they can’t be traced any further in the west but we see ore grade – ore grade vein on the surface there.
So, one of our goals this year is to wide space drill this get our arms around and see what the potential really is at this vein we’re very excited about it and what we see on the surface it’s a wide vein and it shows all the right characteristics to be a major deposit and once we see what we have here there is also several veins heading back towards Marlin that can also be tested. And then just to show you what we been doing with the Coral vein we have managed to get underground and drill quite a few holes what we are seeing is a silver halo around the gold core and where I shows the gold core is – would be intercepts that are that would be ore grade and this is the normal kind of zonation pattern that we saw above into this to the side of the of the main Marlin vein. So, what we’re seeing is a similar setting probably we are higher up in the system then we were at Marlin and what we’re going to do for this year is wide space drill this further down plunge and see what size this shoot can reach. So, we are still very excited about the potential at Marlin and with the results that we have by the end of the year we should have even a better idea of what the whole district has for potential for us. Are there any questions?
Unidentified Company Speaker
Alright, it’s like we don’t have any questions, we will move on to Porcupine.
Unidentified Company Speaker
The Porcupine obviously it’s been a long producer of mining in Canada and Ontario. It’s – some of the areas over 100 years have been mining gold. And with the Porcupine, they have a very strong – another strong production plan for this year from ores operations within the area. But also included in that plan is trying to enhance one of the major parts to the asset of the Porcupine, which is a Hoyle Pond and we are in the process of seeking a shaft, an internal shaft, which will once completed will enhance the flexibility of that operation and increase the efficiencies of the total operation.
So, that’s in the plan as well this year. They are also working on starting up the Hollinger open pit and we expect the first production coming out of that pit now in the quarter three of 2013. We are waiting still on one final permit for the air and water, sorry the air and noise permit. Every other permit is ready to go. We just have to wait for the final permit to come through, which we do hope to have before the end of the second quarter. So, as we can stop blasting in the pit during quarter two and the production in quarter three.
The other area that obviously it is an old mining district and we continue to do all the brick and mason in the area and we’ll continue that program going forward in 2013 and beyond. And one of the emphases of Porcupine because of the large amount of development needs to occur both in the existing facilities as well as the Hoyle dig project. We are actually going to be putting a team together to try to improve our overall development rights. And obviously that will affect our overall development costs, for all the development what we need to achieve with both the internal shaft and the existing operations. And this we are going to utilize for all the underground mines not just the Porcupine operation. That’s one of the challenge we are doing this year.
And as I have mentioned you saw that obviously we are focusing on the Hoyle area and really the aim while we focus a lot on the Hoyle operation is just you see from this graph. The Hoyle underground produces less than 10% of the total tonnes in that operation, but we are just about 50% of the ounces. So, we spend a lot of time looking at ways to improve that property. And we’ll roll those improvements out to the other parts of the operation as we go forward.
Unidentified Company Speaker
The Hoyle has been the key to the production but it’s also been very successful in placing reserves. And part of the big focus every year at Porcupine is to replace reserves in Hoyle. And then at the same time, test where we see is regional targets and we have several that we are working on right now. Just to give you an idea of the layout, this is a photo of shows where Hoyle Pond is where our other active sites are, we are doing – have been doing exploration next to Hoyle Pond at what’s named PST. There, we drilled several holes had some good results and some spotty results and haven’t really put everything the whole picture together there. And then we have also been working near doing exploration near the Dome mine, but kind of half way between Dome and Hollinger. And another area that we are working on is called Nighthawk Lake, which would be off to the upper right corner, a couple of kilometers or few kilometers.
This just gives you an idea of how the reserves are going, you can see in yellow, the 2011 reserve addition was a big reserve addition at Hoyle Pond that year you can see, but we’ve done so far in 2012 and this year is just a matter of drilling deeper and with the access that we get and we don’t see any end in site on this deposit and now we are drilling also holes around what’s the Hoyle Pond core area, which you see on this map that’s called VAZ kind of right in the center. And from the results that we’ve had in the PST we have noticed that there is a lot of new targets and potential right around Hoyle Pond. So, part of our exploration for this year is testing these targets. We have tested some of them and have some really encouraging results from some of them. So, we’re really excited about the near mine potential at Hoyle Pond. Any questions?
Question-and-Answer Session
Unidentified Analyst
Thanks. How do you see the production profile at Porcupine changing over the next couple of years, I mean, how much or to put it different way, how much can you reduce your reliance on low grade stockpiles from the production profile?
Unidentified Company Speaker
Once we get the Hollinger pit in operation, we are actually going to be dropping off the stockpile and we will replace it with the Hollinger pit and that’s the plan going forward at this stage?
Unidentified Analyst
So, you will just say you will be off stockpiles until some time in the future?
Unidentified Company Speaker
Correct, until the pit is finished.
Unidentified Analyst
Thank you.
Unidentified Analyst
My question relates to the grades from the Hoyle Pond underground. For the past couple of years, the grades mine from there had been quite a bit lower than the reserve grade. Just wondering if you could tell me why that is and then when in the mine plan we might see the grades increase?
Unidentified Company Speaker
Again to help with that the VAZ zone is area where we’ve had, we’ve got the higher grades in the reserve and we just started mining into the VAZ here couple of years ago. So, the development is continuing and is that balance between the different ore types more heavily weighted with the VAZ and you will see the grades come out.
Unidentified Analyst
Do you have the permits for the Hollinger pit for those contingents from the mid year?
Unidentified Company Speaker
It’s still contingent on the permits, we have got everything we need other than the air and noise permit. And we are hopeful to have that in the next couple of month, so we can begin initial production. I think we are looking to have the first gold in second quarter, sorry first gold in the third quarter.
Unidentified Company Speaker
First blast in the second corner.
Unidentified Company Speaker
And the real difficult permits like the town acceptance has been obtained, so we are very well off.
Unidentified Analyst
What’s the museum just curious, do you have to move it?
Unidentified Company Speaker
The museum is the artifacts that were in the museum have been returned to Cochenour and the building itself is going to be removed as part of the development of the mine. Alright.
Unidentified Company Speaker
Alright so, I’ll just go through Musselwhite, it’s a consistent producer within the region with some challenges just due to half hour just going underground at this stage and have they moved the material around. They do have a very strong relationship with the first notions around the district and they have just recently being working obviously during the life have worked very closely with wind to go (indiscernible) and as people who know from the PAC that group was actually awarded the excellence in aberrational business award at the PAC on I think was Tuesday night. So, it’s great to see. That company that is a full aberrational company is now moving out away from just Musselwhite and trying to get other businesses and that have a lot of support from Musselwhite and that relationship between both the company and the first nations.
Tied to that obviously we are also working to advance the long-term payout strategy and that really is a lot of work again tied with the first nations. We are getting agreement with him and working with them to basically allow us to bring a power supply to Musselwhite, so as we can drop off a use of diesel generation on the plant. And once we can get that in place, we will be able to affect the operating costs because it will be a lot cheaper than running the diesel generators.
As I mentioned the staff one of the obviously the biggest challenges with Musselwhite is the material movement. It’s getting deeper as we go and everything at this stage is trucked out and conveyed out of the operation. But Musselwhite has also for probably one a very strong agriculture at the site they utilize the O4E continuous improvement, every day they look at ways that can improve how they run their business. So, we are going to be utilizing that on a lot to look at what we can do to enhance the material movement at the site and that may be re-looking at options with shaft, it might be look revisiting things we can bias or some other technology out there that we can actually enhance the are reliability of their material movement that’s one the challenges they have. We do have a strong group of people there to work on it and business support I think that will be one of their big drives for 2013 going forward.
Unidentified Company Speaker
Musselwhite has been one of those mines where it seems easy to replace reserves, we’ve found some new zones the Lynx and we continue with the PQ deep so we continually replace reserves just going deeper along the plunge of these deposits. One thing that we’re focusing on this year that we think will – could add a lot of flexibility to the mining there is to focus our exploration efforts on the West Limb. And you’ll see in a minute how that sits in with the rest of the deposit, but that’s one of our big focuses is to get our arms around the West Limb and to continue replacing reserves. On this map you can see the trace of the existing zones that have been mined, you can see how we’ve drilled from a barge and we have good intercepts extending the Lynx further to the North with those two purple stars and then the PQ Deeps you can see we have a series of good results there. And we think that there is potential for the Lynx in other zones to actually show up as far north as the north shore where the yellow star is.
And this is what a long section showing all of the zones that we know so far to give you an idea of how far the mine has progressed. You can see the line on the bottom center where the current mining has reached. You can see that the Lynx is still appears open up plunge and see the pierce points we have down plunged to the right. You can see where the yellow star on the previous map intercepts are where that north shore arrow and in all of these head towards the north shore. So, we’re going to be doing some wide spaced drilling on mainly one section on the north shore to see how many of the zones really show up there because it will help us with future planning.
And then so far on the West Limb we’ve drilled one section and this shows the results of that section on the West Limb it’s in different rocks, but it shows continuities and multiple shears. So, right now we know we have mineralized shears that are the iron formation. Now our job is to see where the best part of this zone is we just happened to choose one section to drill out now we’re going to do wide spaced drilling to see where the best part of these mineralized shears are in the West Limb and focus and try to get a resource there by the end of the year. Are there any questions?
Question-and-Answer Session
Unidentified Analyst
Are you guys mining in the Lynx zone yet already?
Unidentified Company Speaker
Yeah.
Unidentified Analyst
Yeah, okay.
Unidentified Company Speaker
Lynx is in production.
Unidentified Analyst
It’s in production, so I was curious about the operational under performance at Musselwhite I think you had some growth trajectory there it didn’t actually deliver and this year you actually still have some growth. I’m just wondering what gives you comfort that that particular mine will be able to deliver given masters and what’s changed?
Unidentified Company Speaker
Well, probably the biggest thing that changes Lynx getting more mature, we are getting more development in to that zone and it’s obviously an increasing part of the deposit. Last couple of years we’ve had problems with the conveyor, we had a fire that we had to evacuate the mine that got in the way of some of our production. So, more confidence that we’re not going to have those upside conditions and that we’re going to be able to deliver the production. Our guidance as I’ve stated we’re still very comfortable and confident that the guidance we’ve given you for the year overall for the pond field portfolio was solid and Musselwhite will be there at the end of the year that close to their guidance. We don’t see any other questions for Musselwhite. So, we’ll move on to Marigold.
Unidentified Company Speaker
With Marigold obviously it’s got a good production plan going forward for 2013. One of the successes can Marigold had as mentioned earlier on the very start of today was the cost containment that we have achieved really by utilizing some of the simple delivery systems in place by increasing efficiencies and improving utilization of equipment. So, as we get actually move the tones, so the actually costs per tonne was contained last year even though they have moved more, they have spent less money but moved more tonnes. So, they have actually done an excellent job guiding the maximum efficiencies of their equipment. The other side they are also doing they are actually continuing to go with the O4E and they actually with the expansion capital being invested and they came in with new trucks and obviously in the long run a road shovel that comes late in this year. They will further enhance their efficiencies and draw their costs even further down which obviously helps them to contain theirs costs as inflation goes around.
So they’re doing excellent job on costs containment and obviously delivering their results. One of the benefits of what they have done with their costs control as well as the exploration that going out in the area that had to continue to have a major increase in their reserves from last year going on to this year. And the focus will be again trying to increase those reserves. But Charlie get through that a bit.
Charlie Ronkos - Senior Vice President, Exploration
Yeah the reserves at Marigold now stand at almost 5 million ounces which is the most, the mine has ever had in reserves. So, that’s a major accomplishment and the goal for this year is there is areas that are still open and mainly on the north end and drilling will continue to expand the reserves even further this is a plan map that shows the different targets with the red outline showing where the reserves are. So, the main areas where the focus of work is going to be is in the yellow and orange areas you can see there is gaps in where the reserves are and that’s just a matter of infill drilling. So, they are just going to keep marching to the north, they still have a lot of potential to keep expanding the reserves. Any questions?
Unidentified Company Speaker
Alright we’ll move on to the El Sauzal.
Unidentified Company Speaker
El Sauzal, El Sauzal has been a great asset for Goldcorp and even though it’s coming to an end it’s a beautiful setup and has been a great money producer for Goldcorp in the past. Today it’s in its last two years of production and we’re getting ready for closure which is very important for us to do it properly because we look as Mexico as a country we want to be in for the long run and we want to do things properly. So, closing a mine when you’re still operating is so much better than when you try to fix things after. And we have been working in the last years already focused on that putting the right slopes, fixing the ground, improving the environment so that the closure is really something that’s coming in pretty natural. And we are very confident that this is going to be an example of a whole cycle that we will have done in Mexico from exploration to production to closure in a very nice way. We are working with our workmen and getting them ready for that closure, getting them with tools that they can continue their life after we are out of there. And also there is a lot of expertise in filtering and mining that we will use in our other mines. So, we hope that we will look at Sauzal as one of the high stores of our life in Mexico.
Unidentified Company Speaker
Any questions about Sauzal?
Unidentified Analyst
Any environmental, any kind of bonds that you are going to have to put up in terms of environmental bonds for the long-term life, any salvage value opportunities, and then also anything with the workforce, is there any skill sets that you might be moving over to other parts of Mexico?
Unidentified Company Speaker
Sure. I can take that, in terms of our people. We have pulled a lot of our people out of El Sauzal to our other operations and we will continue that. We have got a strategy where we are going to continue to develop our people, find opportunities and given our big portfolio of operations in future, there is going to be lots of opportunities. Some people aren’t going to be willing to move and so we will focus on helping them with resumes and skill to redeploy their skills in some other fashion in the area. In terms of bonding, yeah, I don’t think we have any substantial bond requirements that Goldcorp has committed to setting aside money for final closure wall of our operations. And we have got a team in Goldcorp involves with the final designs of El Sauzal. We view this as an opportunity really highlight not only do we build mines well and operate them, but we know how to close them in responsible fashion. And so we are really focused on helping the communities deal with that transition that’s coming and ensure the reclamation plans are some, we can be really proud of them and highlight for the new areas that we are building mines to kind of showcase our capability.
As salvage value, it is a good plant and we mentioned earlier at Los Filos where we are doing an evaluation and how can we add value given the large increase in reserves over the last couple of years. So, one of the ideas is potentially a mill and perhaps the infrastructure at El Sauzal could be part of the mill scenario. Whatever it will be the case, we will be removing all that infrastructure and either redeploy it, store it, or sell it, there are some still good assets setting there. In fact, the filters that we have at El Sauzal are the exact filters that we have installed at Marlin in this last year or so. There is also the ability to use some of these as inventory across the portfolio. Alright. So, last but not least, Alumbrera, sorry Wharf, two more to go.
Unidentified Company Speaker
This Wharf, it’s a small producer within the Canada U.S. region, but it’s a consistent producer. It’s done a great job again for 2013 with its plan going forward. Obviously, last year, they did the lot of work and we are successfully able to extend their mine life. And there is potential to actually further that mine life with a couple of areas around the current area that we are working that we maybe able to further extend the mine life past the existing 10-year mine life. At this stage, just moving into the new transitions into the new areas of the expansion which was the part of the mine life expansion, so they just move into those areas now, and that’s going pretty well as per the plan. And they are on track to where they need to be. The other thing that has occurred at Wharf, they just recently certified in the International Cyanide Code and that now means it all of Goldcorp operations are now cyanide certified within the company, because that was the last one to complete. That’s really what I have got for Wharf. Any questions?
Unidentified Company Speaker
Alright. Now, we are on to the last Alumbrera.
Unidentified Company Speaker
Okay. Alumbrera, great asset in a mature stage, this has been a great experience dealing with the team down there. They are going deep into the Pete right now and the challenge is to have uninterrupted operations for the trucks and drills. And this is due to the fact that they are getting into very steep and narrow areas to operate. However, they have been pretty successful until now. So, it’s just something to look after. Important to highlight and some of you have heard about the merger with the Strata and Gelmcore and one of the most important assets that Alumbrera has it’s the team on the field. And for what we know right now there aren’t going to be any significant changes there. And this is great because Alumbrera still has some opportunities there. And they will be able to maintain that management right they have. So, although the mine is approaching to a lower level of production, Agua Rica is one of the areas that they are looking into right now. And it’s the most significant opportunity they have to give more life to that mine. Right now, it’s in the middle of a visibility study that has been extended to be completed for second half of 2013.
I guess an important aspect to consider also here and I guess you have heard Chuck talked about this. In Alumbrera this year, we have seen a decrease on production compared to last year. However, main issue or the main reason why this is happening it’s because the team is down there mining on a very – on an area that has very low grade. And the expectation is that for next year, this will get much better. So, this is Alumbrera. Any questions?
George Burns - Chief Operating Officer
Alright, with no questions, I will circle back first that we had a question earlier about recoveries at Los Filos and so maybe this can help a bit. In terms of our crush recoveries we average about 72%. In terms of the run of mine overall, we average 57%. Give you a bit of variability across the sites that Los Filos spits about 55% and Bermejal is 59%. And they run a mine obviously because we don’t crush and we have a more variability in size. Roughly, you are looking at plus or minis 10% maybe a little bit more than that depending on rock type, depending on fragmentation from the blasting and with the crush material, because the size is controlled much better just a few percent variability. So, hopefully that helps a bit.
So, I will wrap up from an operating and development project perspective, the leadership teams are really excited and confident about the future and we really solid on our guidance this year and as Chuck and I both discussed, we have focused heavily on looking at the risks and understanding and we really believe we have guided a good solid range that we are going to achieve and the market is going to reward us for. In terms of our development projects, I think you can see that we have got a strong pipeline. We are doing a good job of executing that growth. And we will be delivering a new mine every year in the next three years which is pretty unique compared to our sector. And so I have got essentially the key deliverables for 2013 that we are focused on. Number one is that we implement a long-term strategy for Peñasquito in terms of water and allow us to fully develop the potential that we have been focused on since we started building this project. And 130,000 tons a day is still our vision and we believe we get the water strategy implemented. We’ll wrap that mine up and deliver that value.
Number two for us this year is the Pueblo Viejo ramp up. We are really confident about the various teams what I will mention will be down there next week looking under the hood and helping as we can to support that team and executing the ramp up. It’s a really great deposit and it’s going to deliver a lot of value to our company going forward.
Number three for us is Cerro Negro, it is a really exciting mine. As Charlie mentioned, we have already exceeded the exploration that we have put on that project and acquisition time and think that it’s possible to double from that 5 million ounce vision to more than 10 million ounces. And the thing I think is really cool about this as the underground developments advanced along ways now. We have got ore in the ground. The ore body is performing as we expected. Our underground development is on track to deliver the five-year guidance that we have given you. And we are fully focused on getting that mill built in executing the first port at the end of the year.
Our fourth priority for the year is to advance Éléonore mine development. And I think you could see from the long section and the cross section that there is a lot happening this year in terms of development on the ramp. It’s kind of cool now that we have the exploration shaft finished that will be developing both up and down dip of that exploration shaft and meeting in the middle with the ramp from the surface. And all that development just puts more drill stations for Charlie to get additional drills in and help us drill off. Both the infill drilling we need to do the detailed design on, on the stopes, but also some drilling that you saw to step out away from and get a better understanding of the lower mine and we are really looking forward to the results that we are going to have this year.
So, our number five priority is to test Los Filos expansion opportunities. And we have got a great mine life there. Some of the reserves late of mine life have higher strip ratio. So, we are looking at what about bigger fleets, bigger shovels advancing production, increasing our crushing capacity, and perhaps even looking at a mill scenario for the higher grade ore. So, lots of engineering work happening this year to really uncouple what that people looks like and you will be hearing more about that at the end of the year. And then the last is the haulage drift completion at Cochenour. We are on track. Our advanced freights are as we have expected. And as we get close to the ore body, it’s a similar story in the Éléonore. We are finally going to have the positioning that we need to do the more efficient and cost effective underground drilling. It will help us better understand the ore body and allow the engineers to do more detailed mine design and planning. So, it’s a really big year for us in Goldcorp. We are really excited about the position we are in to deliver the value over the next three years in these three new mines. And with that, I am going to turn it over. Sorry.
Unidentified Company Speaker
Sorry, George. We have over 200 participants on the webcast even waiting patiently with a couple of questions. So, with some of the time remaining, I’d like to interject a couple of those if I may. Starting at Marigold, given the reserve base, why not expand production hopefully benefit from economies of scale, increase production and reduce costs on a unit basis?
George Burns - Chief Operating Officer
Throw that us once more?
Unidentified Company Speaker
At Marigold, given the reserve base why not expand production hopefully benefiting from economies of scale, increasing production and reducing costs on a unit basis?
George Burns - Chief Operating Officer
Okay. So, yeah, it’s an excellent question. We have had a really strong growth in our reserve base at Marigold. And the fact that they were able to lower their cost last year in the environment where we have seen most mines cost structures go up offers a great opportunity. In fact, this year we are adding trucks. We are bringing in a large production rope shovel. Current fleet at Marigold is hydraulic shovels. And that shovel will be up and operating at the end of this year. Its delivery dates later in the year. So, that’s our first stage of expansion that actually help increase the production. The team at Marigold is working on a second phase. It could involve the second rope shovel. And so that’s not built into our five-year plan, but we do have a team inside focused on doing exactly that looking to expand the production and take advantage of that reserve growth we have seen.
Unidentified Company Speaker
Another question from the webcast, as you step out at Bermejal at Los Filos, are these 3 million ounces, new ounces of resource at similar grades to the current head grades and what would the strip ratio be similar to what you are mining now at the pit?
Unidentified Company Speaker
The grades are similar or higher, but there is more stripping. So, just visually it seems like they would offset each other.
Unidentified Company Speaker
Any other questions from the group here?
Question-and-Answer Session
Unidentified Analyst
Thank you. Just talking about Los Filos, two questions, one is how much ore if any are you getting from the underground right now. And I noticed that in one of the exploration slides, there was some areas marked in red, Bermejal underground. And I am wondering how much work is going on, on either identifying or building underground tonnage potential there?
Unidentified Company Speaker
That is a possibility. We are looking at future underground mines in that. And our production today is 1000 tonnes per day from the underground and about 6 grams per tonne.
Unidentified Company Speaker
Yeah. We have about 700,000 ounces in reserves for the underground. We think we can expand that quite a bit and that’s what we are looking at is expanding that underground reserve.
Unidentified Company Speaker
Currently, all the underground ore is going through the crushing circuit. And again, obviously the higher recovery is there, but that is the focus for our mills scenario that with the ramp up in the underground given the reserves and the exploration potential and the higher recoveries we could get out of the mill and does that make economic sense. So, we will see what that study tells us later this year.
Unidentified Analyst
One more question, someone is curious about the likelihood of Agua Rica coming into production?
Unidentified Company Speaker
So, Agua Rica is an opportunity that’s kind of exciting. It’s a good deposit that’s had some challenges in terms of being able to develop it, and related to communities and the infrastructure required to build the mine. So, the idea is in the feasibility study that’s underway is to take a look at bringing the ore to the Alumbrera infrastructure and processing it onsite. So, that feasibility study is do out later in the year. It’s falling a little bit behind schedule. And that’s going to tell us a lot about what that potential looks like.
Unidentified Analyst
Thank you.
George Burns - Chief Operating Officer
Maybe I will turn over to Charlie first to do a little bit of wrap up on exploration and then we will hear from Lindsay.
Charlie Ronkos - Senior Vice President, Exploration
Yeah. Just to add, I hope you got a feeling from my sense of excitement here. I feel like we are in the best position we have ever been in adding value through the drill bit. We have some great additions, some great targets like at Cerro Negro finding this new vein, maybe it could turn into another belt, which would be a very big addition there. At Camino Rojo, we have this big sulphide mass, but next to it, we have something that looks like an (indiscernible) or a Fresnillo. So, that’s something really big and important as far as potential is concerned. And then this Skarn at Peñasquitom all of these have the potential to add a lot of value at low cost through the drill bit.
George Burns - Chief Operating Officer
Alright. We will turn it over to Lindsay.
Lindsay Hall - Chief Financial Officer
Thanks George. That was four hours of listening to George and his team talked about the operations and the exploration. And I know I was actually quite excited in the crowd. It was good to see Charlie get a little excited with the exploration at the tail end here, because anyways I can tell you that very proud of this group up here. As we started, Chuck mentioned a few things about capital allocation, fiscal discipline. George has talked a lot about operating for excellence. And I want to say that, that’s important words to a CFO that brings in my ears all the time. And I was going to start with the first slide, where in fact one of my roles as the – if we move to the next slide, one of my roles as the CFO in a corporation is to increase the transparency to all our stakeholders. And I think with the gold industries’ move to what we call all-in sustaining cash costs, that’s the marketed improvement to the way we report costs in this organization.
And you can see the slide that we are talking about now, this is our numbers for 2012. And you can see the sustaining number CapEx on a per ounce basis of $439 as well as the operating costs of $300. And usually in the past, we would have just reported cash costs for the year of $300 an ounce. What’s important to me as the CFO is now we are tiring the capital required to sustain operations as well with those operating costs. So, if you take those combined numbers of $300 and $439, that gives you some idea that bulk of the capital and the operating costs to run the mines. And what it does for me as the CFO, it gets you a little closer to what we, in the financial world, always like to talk about cash flows, because that’s breaking down, what we call, our capital expenditures for the year between sustaining and new project development, which is listed on the cash flow statement. So, if you look at it, our all-in sustaining cash costs were 874 for the year. If you move to the next slide, I’ll show you how that’s calculated.
Moving to the next slide and these now are in absolute dollars, you can see the 874 at the bottom of the column. Well, in 2012 that was calculated as $700 million, excuse me, $245 million of administration costs and you can add it up to sustaining capital of $1 billion at the bottom of the column for something like all-in sustaining costs of $2 billion. And if you divide it by the ounces produced, you will come up with the all-in sustaining cost of 874. Now, you may say to yourselves, what’s important in this slide, and what it is to me is that if you can think of it for a moment. In 2012, we produced something like – we produced 2.34 ounces of gold, which represented approximately $4 billion of revenues in 2012. You can see in that column for 2012, our all-in cash costs on an absolute dollar basis, was $2 billion.
I had revenues of $4 billion. So, that gives you some idea that I had $2 billion of cash flow in 2012 that I had to make a capital allocation decision between returning dividends to our shareholders and investing in new projects. And as we know in 2012, we invested approximately $1.6 billion in the three projects, primarily to what you heard of George and his team talk about today Cochenour, Éléonore and Cerro Negro. And we make that allocation decision, because we feel these are high-grade low cash cost mines that are going to hold us in good stead in the future. And so we choose to allocate the bulk of our cash flows that are available for capital allocation just on that basis. We devoted to the new capital.
If you move forward to the 2013 column, you can see the same kind of scenario set up, where you can go through the cash flows, the absolute cash flows were in fact the all-in sustaining cash flows on an absolute dollar or something like $2.7 billion. And we have got 2.55 ounces of gold produced, 2.5 to 2.7. So, what you can do now as a stakeholder you can apply whatever price per ounce of gold in 2013 you want to use you can do the multiplication and you can take away from it how we are making our capital allocation decision on behalf of 2013. And again you can easily see that in fact for 2013, we are remaining strongly investing and it’s really the last year of investing in a significant way in these three projects in 2013.
And again, our capital allocation decision is allocate the cash flow that we have to make the allocation decision to these three new projects that we are building. You can see that if in fact 2013 is the last build out year for Cerro Negro, you can see that new capital falling off in 2014 and you will slide into a free cash flow from my point of view. When I say free cash flow, that’s cash flow after revenues, less operating costs, less sustaining capital, less new project, we’ll slide into that decision in 2014. And we will come back and make the same kind of thought process. You’ve heard some of that exploration potential that Charlie has talked about, he talked about Peñasquito, he talked about more at Cerro Negro he talked about Camino Rojo. We will have more – we will get into our feasibility stage growth projects. And we will make the same capital allocation decision to invest in these new growth projects that currently aren’t in production and exclusive to the three projects we talk about. And we will make the same decision to allocate into those or in increasing dividend down the road, but this is the power of this, the all-in sustaining cash cost slide. It gives you that breakdown and capital allocation that I think was missing beforehand.
If you flip to the next slide what’s important to us in 2013 you can see that our cash costs and our all-in sustaining cash cost number has risen 2012 over to 2013. And what this slide is indicating is on the cash costs portion of that calculation. Our absolute dollars of cash costs have gone over year-over-year in 2012. Our cash – excuse me our all-in – excuse me operating costs are something like $700 million, which I reported to. And now in 2013, it’s going to grow to 1.410 billion. What’s that made up of though is pretty important to us, and that’s why we are pretty confident, after 2013, our cash costs will go down, i.e., our all-in sustaining costs will go down for these simple reasons. And I’ll explain the variances. You can see the first set of variances the 51.162 million, which is what the byproduct volumes are year-over-year. That’s simply recognized that at Alumbrera and Peñasquito, we are at the top part of the ore body. So, hence the grades and some of the base metals are not as large, are not as great in 2013 as they were in 2012. So, we are simply just producing less of that commodity and that’s an increase to the cash costs or all-in sustaining cash costs. So, that takes care of a significant portion 30% of the increase year-over-year. If you go to the last reconciling item, the Pueblo Viejo, $216 million, these are absolute dollars. That’s just recognizing year-over-year, Pueblo Viejo is now into commercial operations and we are actually enjoying the revenues and the costs associated with operating that mine.
I want to point out in the case of PV, it doesn’t add to, it actually subtracts to our average, all-in cash costs, because it’s a low cash cost operation. I am showing you the absolute dollars. Now, what’s very important to George and the team everyone of us at Goldcorp is that other column that I haven’t talked about the OpEx of $274 million. That’s an increase year-over-year. And if you look at that increase approximately 30% of the increase is related to Canada and you’ve heard Chris talk about all those activities that is got planned to actually get - looking at those costs getting them reduced, and that’s primarily what we are using the (O for E) program to do, to get at those cash costs going on in the Canadian operations.
Out of the $274 million, approximately 50% is going on in Mexico. And of that, most of that is related to the fact that Peñasquito is at the top part of its pit. It’s got a high strip ratio in 2013 over 2012. So, that’s why when we get lower in the pit, which we will in 2014 and 2015 two things will happen to us. The grade will pick up on the byproducts that we don’t have it currently in 2013 as well the stripping ratio won’t be a steep in 2014 on. And you will see that go away in a large part in 2014 and 2015. So, that’s why we treat 2013 as kind of an unusual year we are adding to the pit yet Peñasquito as well to some extent at Alumbrera. Plus if you think of it, there has been so much excitement that Horacio talked about Peñasquito with all his O for E activities, his crushing plant, his milling plant, his operational excellence around the trucks. That’s why we see the best years are ahead of us at Peñasquito in terms of efficiency. So, that’s why we are pretty confident that into the future our cash costs go down.
But with that, I went through the financial slides pretty quickly, but I am happy to take any questions from anyone before I turn it over to Chuck for his concluding comments.
Question-and-Answer Session
Unidentified Analyst
Thanks. Could you give us a sense of what your capitalized exploration and capitalized interest will be this year?
Unidentified Company Speaker
I got no debt, so in 2013 yeah actually we have very little capital debt outstanding, so it will be next and I think Victor and the other thing we are not capitalizing any cost in terms of you say capitalization?
Unidentified Analyst
Exploration.
Unidentified Company Speaker
Exploration, the half $100 million of the $200 million, yeah something like that.
Unidentified Analyst
Could you give us a description of you know what is sustained in capital because I can understand against underground development but maybe stripping but fuel power that’s all in your capital cost, so what’s embedded in that can you just gave us some examples of what...?
Unidentified Company Speaker
Yeah, trucks, shovels that kind of thing. Trucks and shovels for the most part would be when we are replacing the truck fleets things like that.
Unidentified Analyst
But it’s an ongoing yearly basis.
Unidentified Company Speaker
Yep.
Unidentified Analyst
So, we should expect that?
Unidentified Company Speaker
Yeah, that’s why what you’re staying was what’s your run rate run rate for sustaining capital. And again a fair degree we have a nice mixture of open pit underground mines. So, don’t underestimate the element the development of the underground mines to go on year-after-year just to maintain production particularly very light that’s part of that number of sustaining capital.
Unidentified Analyst
Thank you.
Unidentified Company Speaker
Here now I will turn over to Chuck to conclude.
Chuck Jeannes - President and Chief Executive Officer
Alright. Thanks Lindsay and thanks ever body for hanging in with us. I actually had a couple of more questions that came in. one, given all the success why don’t we increase Charlie’s budget I think that came from some one on our Board. I get that question – I get that question every Board meeting. Now look Charlie and I have done this for quite a while. And if during the course of the year he is on to something and needs more funds, he always gets it. And our board is very supportive because it’s kind of a results driven budget. And to the extent and you have seen actually in the last probably at least the last three years in a row his budget has gone up at some point during the year because of some success that we’ve seen along the way. So, I know he has got something in his back pocket that mid-year I will be hearing about and if the results are there, the money will be there.
Another question was regarding strategy is there a thought that we should change our strategy in order to attract journalist investors that have left the space in some at some level. And In I think that’s a good question. I tried to address that in the beginning by saying that we think our strategy is sound and that we don’t need to change our strategy, but clearly through a variety of situations or conditions certain investors have been scared away from this space and we have recognized that. I personally believe it’s a matter of ourselves and our peer companies delivering on what we say we are going to do, not taking strategic left turns and surprising people and kind of sticking to the knitting. And it’s hard to say on behalf of anybody else how that’s going to work although I can say listening to presentations from other companies or conferences and such it sounds like people are going to be fairly disciplined in their decision making going forward.
From Goldcorp’s perspective, we think that if we execute if we avoid the issues like we had last year at Peñasquito and Red Lake, we deliver what we tell you we are going to do. We will perform when and how the market reacts to that we can’t control and so we spend a lot of time focusing on the things we can control. And that’s exactly what I would like to leave you with. We will focus this year on executing and on delivering the guidance that we have gone through in great detail today, not just for 2013 but for the five-year plan. You’ve heard a lot about operating for excellence and it’s because it’s something that we spend a lot of time talking about internally. There are opportunities that $234 million red block in Lindsay’s slide that is the opportunity, that’s increased cost that if these guys can find ways to run their mines more efficiently, more productively, do things like Marigold did last year and see the per tonne cost go down, we will effect that number. And that’s in our guidance. And I want to do better than that and that’s what our challenge is and every one of us is this focused on it. The other means of executing is delivering on the projects, delivering them on-time and on-budget. And as you heard from Barry at this point everything is going very well. We think that we have done a level of risk assessment looking forward, it’s hard to anticipate everything, but we feel good that we have got those projects lined up in terms of their timing and their budget to deliver them.
And then finally we are always focused on growing the business. And as I have said at the beginning we look for M&A opportunities, but as you have heard we have got lot of organic growth opportunities in the company. And I mean I am excited, I am not sure if their timing exactly came through, but the idea for Camino Rojo is to spend a lot of money drilling there this year. Get our arms around the deposit, get into resource by the end of the year hand it over to the project development team, let them start working on a pre-feasibility study. They will be doing metallurgical work in the interim period and so perhaps by the end of 2014 we have got at least a pre-feasibly study and run our way towards a feasibility and a construction decision at a very large project. So, I mean that’s an aggressive timeframe and we have got to get the feasibility study done as well. But that looks to be an opportunity that could provide the next leg of growth for Goldcorp and we are excited about it.
So with that I guess I will ask one more time if there any questions, yes.
Question-and-Answer Session
Unidentified Analyst
Chuck just getting back to this idea of the capital discipline theme in the industry, just going through your own presentation here, you guys have kind of chocked up CapEx changes to original project quotes to the tune of about $1 billion and some of that’s changes in scope but a large part of it’s just cost inflation. And as the gold prices flattening out the margin for error – in other words the enterprise value of these projects is starting to be held constant or in check or even reducing by raising costs but a flattening gold price. So, given that its enterprise values kind of zero sum game now between trade-offs of CapEx, over runs coming straight out of equity. My question is what kind of incentives and or penalties are setup inside your company now in order for meeting those kind of targets going forward?
Chuck Jeannes
It’s a great question and let me just say first that I think the industry kind of missed the bulk in terms of for years for last 20 years we have used current dollar capital estimates for our projects and conservative gold prices on the basis that if there is inflation in our capital estimates it would be taking care of by a higher gold price because gold would move up with inflation on a time scale basis. What we have seen over the last three years is we have had massive increases in capital costs with relatively shallow increase in the gold price. And so that margin has been compressed and I think I don’t know about the other companies, but what that’s taught us is that we have to be much more vigorous I guess or rigorous in looking at not just today’s capital estimate, but sensitizing it for inflation down the road where we didn’t use to do that. And so I guess that goes to the heart of capital discipline is that we will make sure that we do run appropriate sensitivities around the capital estimates and the gold price to make sure that we have sufficient margin to have a capital increase over time and still get the rate of return that we think we need to exceed our cost of capital. So, the second part of your question or the second part of m answer will be yes. For the first time we now have a capital management objective measure in our bonus program to determine how well we – and to judge us on how well we do that in terms of our annual incentive program.
Unidentified Analyst
So, just to clarify if I understood you correctly that old way of planning used to be to say well if we have cost inflation in the gold industry for CapEx or OpEx, it will be will reflected in higher gold price, but now you are finding a disconnect. So, going forward is that part of the thought process at all or are you now just independently looking at a mine side and regardless of what the gold price as you’re just going to say, we think this thing is going to cost us $1 billion. And you are not allowing any kind of allowance for rising or falling gold prices affecting the capital cost of that project?
Chuck Jeannes
I am not sure I understand the question, I mean we have always you have to take a gold price to use for your assumptions on your economical returns on the future investment and…
Unidentified Analyst
So, I mean as it relates to – as it relates to capital inflation?
Chuck Jeannes
Yeah, what I am saying is that we are now looking at least sensitivities on inflation, it’s hard. And that means inflate everything 5%, inflate everything 10%, see what would happen. If the same kind of situation that we have seen over the last five years continues for the next five years, we want to take that into account in our investment decisions. And we don’t have a defined program yet as exactly how we are going to do that, but we are talking about it a lot. And we don’t have a new project yet to apply this thinking too, but at our Board level and management level we are thinking about how we best take that factor into account that’s hurt the industry over the last few years, when we make next big investment decision.
Unidentified Analyst
Thank you.
Chuck Jeannes
Thanks
Unidentified Analyst
I just have a question for Lindsay just the shop registration that was filed on March 1st for $1.5 billion, is that for the convertible to be paid next year?
Lindsay Hall
I think that we fall off the shelf, and it was registered today. So, I think it’s just getting our thought process together that gives us access to the market whether we choose to take advantage of that. But the only obligation we have up – coming up for an obligation is the comfortable $862 million that’s due August 2014.
Unidentified Analyst
Thanks.
Unidentified Company Speaker
Alright, one more question.
Unidentified Analyst
You should have keep going up, a lot of things going on in Mexico and I think that there has been more, more news about the government, were you looking at their mining policy and introducing potentially some tariffs and what kind of dialogue have you have with the government and just any kind of thoughts, color you can provide us in that?
Unidentified Company Speaker
We had a lot of dialogue with the previous government. I have met with President Calderón a couple of times and talked about some efforts that had been in congress to add a royalty to mining production in Mexico. And of course that didn’t happen. We anticipate that there will be efforts and as you say there has been noise around that, but nothing’s been proposed yet, nothing’s happened. We’ve had a lot of contact with the new administration, but there is still sort of getting their feet underneath them and there hasn’t been any policy discussion around this yet. We will certainly be there when it happens we have very good relations with the federal government in Mexico at variety of different levels and we will be a strong participant in those discussions when they happen.
Unidentified Analyst
(Question Inaudible) just information.
Unidentified Company Speaker
Sorry start over…
Unidentified Company Speaker
The mining commission in the senate of Mexico is just been formed, so it’s there is time still.
Chuck Jeannes - President and Chief Executive Officer
Alright. Well, thank you very much. We have launch in the next room. I appreciate again all of you being here and I hope you can all get home tonight. Thanks very much.
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