The National Post is Canada’s second largest national paper.
Goldcorp Inc. expects to record a massive writedown of up to US$2.7 billion on its new Cerro Negro mine in Argentina due to ongoing political and economic challenges in that country.
The Argentine government has made life extremely difficult on foreign mining companies by restricting the imports of goods and services and implementing exchange rate controls that limit companies’ ability to convert Argentine pesos into U.S. dollars. Inflation is also very high; Goldcorp previously said that every time it brings a dollar into Argentina at the official exchange rate, suppliers and contractors treat it at the “unofficial” rate, which is almost 70% higher.
The ultimate cost of the impairment, which will be reported in Goldcorp’s fourth quarter earnings, should fall between US$2.3 billion and US$2.7 billion, the Vancouver-based miner said on Monday night.
Goldcorp did not see these problems coming back in 2010, when it paid $3.6 billion to acquire the Cerro Negro project. Chief executive Chuck Jeannes has said that he expects the challenges to gradually fade over time. Construction costs at Cerro Negro ran far over budget, but the mine finally reached commercial production at the start of January. It is expected to be a major cash flow generator for Goldcorp, with production of up to 475,000 ounces this year.
Goldcorp also announced Monday that it produced 2.87 million ounces of gold in 2014, falling below the low end of its guidance (2.95 million). However, the company expects production to grow roughly 20% this year to between 3.3 and 3.6 million ounces. Capital spending is also expected to fall sharply as three new mines (Cerro Negro, Eleonore and Cochenour) ramp up production.
“We enter 2015 with an outstanding portfolio anchored by young, low-cost mines that are positioned to contribute free cash flow this year and beyond,” Mr. Jeannes said in a statement.
For the rest of this article, click here: http://business.financialpost.com/2015/01/12/goldcorp-inc-warns-of-massive-writedown-of-up-to-us2-7b-on-argentina-mine/