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Goldcorp Inc. is leading an industry push to clamp down on suppliers, pressuring them to slash prices so the mining company can keep costs down amid the sector’s slump.
Miners are under siege after bullion lost about a third of its value over the past couple years. Big gold producers such as Barrick Gold Corp. and Kinross Gold Corp. overhauled operations and wrote down assets to mitigate the downturn. Smaller miners such as Iamgold Corp. have cut dividends to preserve cash. Now mining companies are pushing suppliers to slash prices on equipment, goods and services after years of escalating costs.
Goldcorp, a major producer and favourite among analysts and investors, is leaning on vendors to help reach the company’s goal of cutting costs by 17 per cent.
“We ask that you perform an immediate review of your costs and propose adjustments to your current pricing to meet our target,” the company said in a letter viewed by The Globe and Mail.
The pressure is bearing fruit. By the end of June, Goldcorp had realized $74-million in reductions from squeezing its supply chain – an area it has identified as “one source of significant cost savings.” The Vancouver-based company is aiming for $100-million in annualized savings.
In its letter, dated May 1, Goldcorp asks suppliers to propose a discount on the goods or services that would take effect in July.
The document cites the miner’s plan to reduce its total expenses to produce an ounce of gold by 17 per cent. The letter was addressed to the company’s North American suppliers and signed by Goldcorp’s purchasing director, as well as the general managers for its Red Lake, Musselwhite, Porcupine and Wharf mines in Canada and the United States.
When gold plunged last year, Goldcorp sent a letter warning suppliers that no one had any idea how far the precious metal would fall.
Gold had lost 20 per cent of its value by August of that year and was trading just above $1,300 an ounce.
The miner noted that its recent billings were evidence that some of its vendors were “enjoying substantial profit” from Goldcorp’s operations.
“We as a company cannot and will not pay any premiums and are looking aggressively at any and all opportunities to manage our costs lower on a continual basis,” the company said in its August, 2013, letter.
Goldcorp is not the only miner demanding lower prices from suppliers.
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