Goldcorp Reaffirms Commitment After Filos Sale

In January 2017, Goldcorp announced that it would sell its Los Filos asset to the little-known Leagold Group, a move that shocked the market in Mexico. With over 272,000 ounces of gold produced in 2015, Los Filos was the third-most prolific bullion producer in the country and apparently, the perfect sidekick to the company’s superstar, Peñasquito. The sale, completed in April for a total of US$279 million in cash and a further US$71 million in common shares, led many to question Goldcorp’s commitment to Mexico. According to Michael Harvey, the company’s Director for Corporate Affairs and Security, such questions are wide of the mark.

“We sold the Filos Mine to Leagold as part of our strategy to concentrate on assets of a certain size and quality. Filos is a fine asset but was too small for our strategy,” he says. “Peñasquito in Zacatecas is one of our main camps, and we are in the process of delivering US$50-60 million to the mine in efficiencies.”

This commitment to further brownfield exploration in Mexico will have been greeted with a huge sigh of relief in the Undersecretariat of Mining at the Ministry of Economy. Goldcorp, the world’s fourth-largest bullion producer, operates one of the country’s largest gold mines at Peñasquito and is a vital contributor to the local mining sector.

But the Vancouver-based corporation is not blind to the challenges brought about by working in Mexico. Harvey describes the tax environment as “uncompetitive,” while urging authorities to confront the “legal uncertainty” that weighs down the appeal for investors. The Ecological Taxes imposed by the Zacatecas state government in December 2016 were another blot on the copybook. Harvey admits that this was “an unfortunate mistake” that was inspired by “revenue generation, not environmental protection,” but not enough to damage his faith in a jurisdiction in which the company has been working for so long.

¨I know that the governor understands mining is absolutely essential to the viability of Zacatecas and we will get past this hiccup,” he says. 

While profit margins at Peñasquito were threatened by the taxes in Zacatecas, the Los Filos mine is situated in the heart of Guerrero, a state that has a damaging reputation as one of the most violent in Mexico. But Harvey refuses to be discouraged, insisting that security concerns had nothing to do with the sale to Leagold. In fact, he is optimistic that Guerrero can continue to grow as a mining state and that the industry can play an active role in erasing some of the violence that has generated the negative headlines in recent years.

“Mining provides legitimate employment opportunities and strengthens social cohesion,“ he says. “There is tremendous potential in Guerrero and the governor has shown that he understands just how much benefit this can bring to the people. We want to see Guerrero do well.”

Although the Los Filos sale means that Goldcorp’s direct involvement in Guerrero has ended, the company still has a financial interest in the state through the 30 percent interest in Leagold, received upon completion of the sale. The company also has a stake in Timmins Gold, which will bring its Guerrero-based Ana Paula project into construction in 2018.

For now, though, Goldcorp appears to be firmly focused on continuing to develop and improve its prized asset at Peñasquito. The mine is currently in a significant stripping phase, which will reduce gold production from 449,000 ounces in 2016 to approximately 410,000 ounces in 2017. But this will rebound once the pyrite leach project is completed in 2018, an upgrade that will add 100,000-140,000 ounces of gold annual production and 4-6 million ounces of silver. The strategic role Mexico plays in Goldcorp’s international portfolio does not appear to be shifting anytime soon.

“The exploration work will allow us to extend the life of the mine,” says Harvey. “Mining is a highly strategic industry for Mexico that is not as vulnerable as other industries to external political factors. Mexico absolutely has what it takes to get back to the level of attractiveness it had just a few years ago.”