Goldcorp’s Eleonore Results Are a Major Disappointment

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Source: Thinkstock

Source: Thinkstock

As a shareholder in Goldcorp (NYSE:GG), I was disappointed to read Friday evening that the company released worse-than-anticipated results for its next producing mine in Canada — Eleonore.

Investors had high hopes for this mine, especially after Goldcorp had poured billions of dollars into its development. The company had led investors to believe that the mine would be able to produce more than 600,000 ounces of gold per year for 15 years after an initial “ramp-up” period, during which the company would produce 300,000 ounces. While the mine didn’t have the resources needed in order to produce this much gold, the company was certain that it would be able to substantially expand the resource base so that it could achieve its desired production results.

On Friday, however, we learned that the company grossly overestimated the extent to which it could expend the resource. Prior to Friday, the resource had an estimated 7.7 million ounces of gold. The new resource estimate shows just 8.1 million ounces, or about a 5.2 percent increase. Furthermore, a lot of these 8.1 million ounces are classified as “inferred resources.” Inferred resources are just what the name suggests — they are inferred. Geologists use models in order to make a projection as to how many ounces of gold exist in a certain region, even if it hasn’t been directly measured. In other words, these ounces are speculative and they may not exist.

Furthermore, we learned that the mine won’t be producing for 15 years — rather, it will only produce for about 9 years with a few months of production in 2014. This production will not average 600,000 ounces or more. In fact, it is going to peak out at about 515,000 ounces and average about 400,000 ounces. For a company that will produce a little more than 3 million ounces in 2015, this missing 200,000 ounces is a big deal.

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