Extraction of Profitable Ounces Remains Possible

Q: What is Goldcorp’s strategy to ensure that its operations produce not only minerals but also economic value?

A: The market conditions are currently challenging and the gold price has been depressed. The new tributary rates for mining companies coupled with rising costs for equipment and services mean that we have to improve efficiency. As a result, we are not merely looking to extract additional ounces, we are looking to extract profitable ounces. This means we have been focusing on organic growth in our mines, seeking a stricter approach that will lead to increased profitability for produced ounces as well as the authorization of capital investments. We have become more disciplined in our financial analyses and stricter in our decision-making processes. In spite of this adversity, we have positively adapted to these harsh market conditions. We are still delivering value to our shareholders and business associates, adhering to our company vision of “Together, creating sustainable value.” The situation has led Goldcorp to become a better company. The safety of our employees and their families is our number one goal, leading us to be successful in achieving our safety targets. A solid safety foundation allows us to concentrate on increasing our revenues, our production, and our margins. This is the approach we are using for all our other operations, and it goes hand-in-hand with our “Operating for Excellence” program.

Q: How did Goldcorp allocate the US$480 million it invested in Mexico in 2014?

A: A large portion of this, approximately US$400 million, was destined to support our Peñasquito and Los Filos mines. These investments covered the expansion of secondary infrastructure needed to maintain operational levels, such as tailings dams, leaching pads, pumping systems, and other necessary equipment. This shows how capital intensive the mining business is, a company needs millions of dollars just to maintain production levels. Without these investments, mines cannot continue operating. We therefore have to be sure that investments will actually deliver value. The remaining US$80 million is being used for the development of a new project, the gold-silver Camino Rojo mine in Zacatecas, which is currently at the pre-feasibility stage. It is a very interesting project which might be as large as Peñasquito and which will likely move to the feasibility stage in 2015. We hope this mine will allow us to create at least 3,000 new jobs as we see great potential for Camino Rojo. The challenge, in the context of dropping metal prices and high cost structures, is to develop a mineral reservoir with a decent grade that generates enough revenue to justify its development. In this industry, either you find a metal-rich deposit, which are scarce, or you find a deposit with enough volume of mineral ore to develop large-scale mining processes through economies of scale.

Q: One of the limiting factors for large mining projects in Sonora is the scarcity of water. Will Goldcorp be improving the water supply at the Peñasquito mine?

A: This issue was taken into consideration within our sustainability investment. In Peñasquito, we worked on improving our tailings dam, which is where we store waste from mining and metallurgical activities, to recover more water from this process through a closed circuit. Instead of flowing out to the nearby environment, water from our mining and metallurgical processes gets treated and reused in our operations. There are still some losses due to evaporation or absorption in the sludge within the tailings dam, but we have considerably improved water recovery.

Q: What lessons did Goldcorp learn after the temporary halt of operations at Los Filos due to issues with the landowners?

A: Land use and access are a general issue in all extractive industries, not just in the mining industry. Mexico’s competitiveness as an investment destination depends on various factors such as political and economic stability and fiscal framework. The lack of attention to these factors is now diminishing the country’s competitiveness. However, the judicial certainty given to investments in the extractive sectors is the most important factor, and land ownership is part of that certainty. There are mechanisms in the Agrarian Law that enable companies to reach agreements with ejidos. These mechanisms are often challenged legally and there is a lack of a strong and clear legal framework that regulates this contractual relationship between companies and ejidos. Following all the protocols and formalities when engaging with an ejido is no guarantee that a proper, long-term relationship will be maintained. People find legal mechanisms to challenge agreements, forcing companies to restart negotiations with ejidos when they already have a fully operational mine. This places companies in a situation of legal vulnerability and slows down or halts investment and development in the country. The mining industry, in collaboration with the government, has to find mechanisms to guarantee legal agreements regarding land use. This is the real challenge.

Q: What are the goals for the closing of the El Sauzal mine in Chihuahua and what is your perspective on its performance throughout its mine life?

A: El Sauzal was a very profitable, well-designed, highquality mine, but it is currently entering its closing stage as the deposit is becoming scarce. Four years ago, it had production levels similar to those seen in Los Filos, Guerrero. El Sauzal was yielding 5 g/t of gold at its peak. We only wish it had a longer lifecycle. This is normal, though, as a deposit of such quality is obviously not going to have the volumes found in Peñasquito. As far as daily production volumes go, the key lies in the value that can be created and El Sauzal provided substantial value to Goldcorp’s portfolio. Our goal is to make the closing of El Sauzal an example of how Goldcorp applies the same professionalism during closure as it does during the operation of its mines. We are going to create and carry out world-class restoration and closing plans, through complete social and environmental commitment.