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Insight

Goldcorp’s Mexico Focus

Mon, 10/21/2013 - 16:51

Goldcorp is one of the biggest and fastest growing senior gold producers in the world, with operating assets including five mines in Canada and the US, three mines in Mexico, and three in Central and South America. The Canadian company, which employs over 16,000 people worldwide, ended 2012 with record revenues of US$5.4 billion and gold production of 2.396 million ounces. Ian Telfer, the company’s Chairman, wrote in his 2012 letter to shareholders that although there are many risks over which the company has no control, such as market prices, by focusing on achieving the lowest possible production costs it will be possible to manage that risk. Over the last decade Goldcorp’s strategy has been based on acquiring high quality assets with large, low-cost ore bodies in politically stable jurisdictions, and putting qualified human capital in place to operate the mine sites.

Currently, Goldcorp has three operating properties and two development projects in Mexico. Its Peñasquito mine in Zacatecas is the company’s second most productive operation after Red Lake, its flagship property in Ontario. After having overcome a land dispute by the end of the first semester of 2013, Peñasquito is considered a world class asset that is destined to be a key driver of the company’s cash flow and production growth for years to come. Last year, Peñasquito produced 411,300oz of gold, overtaking the Los Filos mine in Guerrero that produced 340,400oz, and staying far ahead of the El Sauzal open pit mine in Chihuahua that produced 81,800oz. The combined production of these three properties amounted to 833,500oz of gold in 2012, which represents 26% of Mexico’s total gold production for the whole year.

Peñasquito began commercial operations in 2010 and has since become the largest gold mine in Mexico, but also is the fifth largest silver mine in the world, and the second largest in Mexico. This has been possible despite several challenges the company has faced in relation to water availability at the site, which is expected to limit total production during 2013 to between 360,000 and 400,000oz of gold. As part of Goldcorp’s production enhancement strategy the company plans to invest US$150 million in a water well that will be completed by the end of 2014, and which will overcome the key obstacle to resuming operation of the sulfide plant at its designed capacity. The company is also currently expanding the crusher capacity in Los Filos to improve the rate of recovery from 57% to 72%.

In order to mitigate any concerns the local communities may have regarding the mining operations, Goldcorp is working with them in order to understand and address their needs. The company’s strategy to hire locally when possible, providing employment opportunities for both local and state residents, has proved to be successful at Peñasquito where 72% of the current employees are originally from the state of Zacatecas. At this mining location the company provides educational support programs that include scholarships as well as an adult education program. The company has also funded the construction of a technical school that provides programs for mechanics and electricians, which accepts 135 students per year. At present, 50 students carry out professional practices at the mine site each year. The company also runs a microfinance project that boosts small business creation in the surrounding communities, including textile production, mesquite woodcrafts, ecotourism, and smallscale industrial sewing. In September 2013, UNAM and Goldcorp signed a collaboration agreement, in which the mining company donated US$250,000 for scholarships in the Earth Science department.

Safety plays a big role in the company’s sustainable growth philosophy. After the 2010 fatality at Peñasquito, it focused on its program “Safe Enough For Our Families”, based on three themes: care, think, act. The program has reaped positive results, such as the incidence rate falling by 15% in 2012, and Los Filos becoming the first mine in Goldcorp history to retain the Best Performance award for two consecutive years, by maintaining the lowest injury rate in the company. Peñasquito also led the way for the company’s other mines with several initiatives, such as its Safety, Environmental and CSR fare, and the introduction of health activities into the daily work routine.