Goldcorp’s Jeannes at Roundup 2015: Gold sector ‘on its way back to relevance’ (Northern Miner – January 28, 2015)

The Northern Miner, first published in 1915, during the Cobalt Silver Rush, is considered Canada’s leading authority on the mining industry.

“I think in our business we’re really too insular. The reality is we have
a lot more people to convince in order to be given the broad social license
we need to continue to conduct our business. We have to operate in a way
that benefits more than just our shareholders.”
(CEO Goldcorp Chuck Jeannes – 2015 Vancouver Roundup)

VANCOUVER — When it comes to discussing gold markets there likely aren’t many people who can command as much attention as Goldcorp (TSX: G; NYSE: GG) president and CEO Chuck Jeannes. The company is positioned as the world’s biggest gold producer by market capitalization, and has been an industry leader when it comes to controlling operating costs and driving growth with a policy of strong capital discipline.

Goldcorp hit record production of 886,000 oz. gold during the fourth quarter, and produced 2.87 million oz. last year. The company brought two new mines into commercial production over the past six months — including the Cerro Negro operation in Argentina and Éléonore project in Quebec — and it is now positioned to generate free cash flow indefinitely, assuming a gold price of around US$1,200 per oz.

“Right now the multiples the market is affording our business is at a thirty-year low. When I say our shareholders have abandoned us I think that’s the biggest piece of proof. But that gives us great opportunity to improve moving forward, and I think you’ll see those multiples bounce back,” Jeannes comments.

“Costs are on the way down, and we’ll see continued improvement going forward. I mean, we’ve seen almost a perfectly negative correlation between gold price and average grades. We can blame inflation and costs all we want, but we have to accept a lot of the blame because we allowed that grade to go down,” he continues. “We lowered our cut-offs and chased marginal ounces. You combine higher costs with the fact we had to keep investing capital to grow our business, and you see that over the past decade we haven’t made any money.”

Goldcorp’s all-in sustaining costs dropped around 6% in 2014 to US$950 per oz., and the company is forecasting 2015 production of between 3.3 million and 3.6 million oz. at all-in sustaining costs ranging from US$875 to US$950 per oz.

Part of Goldcorp’s success has come from bringing newer, low-quartile cost mines into production while vending out older assets. Last year the company generated around US$380 million in cash through the sale of two U.S. mines, namely Marigold and Wharf.

And while Jeannes commends the gold industry for its improved “financial discipline” and “smarter allocation of capital,” he also believes in supply-demand fundamentals that he believes will fuel a “steady improvement” in gold prices over the next five to ten years.

On the supply side, Jeannes comments that the industry is currently reaching what he calls “peak gold”: the thrust of the concept being that miners will never again produce as much gold as they will in 2015, and that’s got a lot to do with the declining rate of gold discoveries.

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