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Gold & precious metals, macro, research analyst, deep value
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Summary

  • Goldcorp recently announced that it has achieved first gold production at its Cerro Negro Project.
  • I anticipated this in my February article.
  • This fits with my investment thesis that Goldcorp is unique among large-cap gold miners as a growth story, but its disappointing Eleonore results lead me to question owning the stock.

On Friday, Goldcorp (NYSE:GG), the world's largest gold miner by market capitalization--announced that it has commenced first gold production at its Cerro Negro Project in Argentina. The mine currently has an estimated life of nine years. It will produce over half a million ounces per year for the first five, and 250,000 ounces per year in the remaining four years. There is also a reasonable possibility that the company can extend the mine's life and increase the number of years that it produces at the higher rate of production.

This is largely in line with my thesis that Goldcorp's near-term growth potential makes it attractive relative to other majors. With production commencing at Cerro Negro the company now produces well over 3 million ounces of gold per year. Once it begins production at its Eleonore Project later this year it should be producing over 3.5 million ounces of gold. With companies such as Barrick Gold (NYSE:ABX) and Newmont Mining (NYSE:NEM) struggling to grow Goldcorp comes across as an attractive alternative.

With that being said I think investors should be wary of a couple of things that have led me to temper my enthusiasm for the stock. The first is that the company is having trouble keeping its production costs down. First quarter production costs were around $1,150/ounce when you consider all of the company's expenses. While this means that the company is profitable it is also vulnerable to a falling gold price. Second, the company released disappointing results at its Eleonore Project. The company's economic assessment of that project shows annual production averaging around 400,000 ounces per year, whereas management was confident in 600,000 ounces per year. This may still be achievable but it could take a few years. This will further add to the company's development costs for Eleonore, which have already exceeded initial estimates. Given these points I would be more careful in the stock, especially since it is assigned a quality premium. It should be held to higher standards as a result, and I'm not sure that management is meeting them.

Source: Update: Goldcorp Commences Production At Cerro Negro