OREANDA-NEWS. GOLDCORP INC.today reported its second quarter 2016 results and a decision to proceed with expansions at both its Pe?asquito and Musselwhite mines. 

Second Quarter 2016 Highlights

"While lower production was expected in the second quarter, the decision to accelerate a significant organizational restructuring had a short-term, negative impact on gold production.  With the decentralization of our business well underway and new mine management installed at the majority of our operations to reflect the new business model, Goldcorp is poised to deliver better gold production and cost performance," said David Garofalo, Goldcorp President and CEO.  "We continued to advance our robust project pipeline with the decision to proceed to construction with high rate of return expansions at our Pe?asquito and Musselwhite mines."

ORGANIZATION STRENGTHENED

Going forward, the mine general managers will have much greater accountability for growing the net asset value of their individual businesses. The focus of the corporate office will be to provide oversight and allocate capital.  To those ends, mine management changes were undertaken and the Company reduced the number of employees at the corporate and regional offices by approximately one-third.

As part of the organizational re-design, the Company has strengthened the senior management team with the recruitment of several key individuals.  Paul Harbidge has been appointed Senior Vice-President ("SVP"), Exploration reporting to George Burns, Executive Vice President ("EVP") and Chief Operating Officer.  Paul will be responsible for the development, implementation and management of the global exploration function, within the decentralized model.  Paul brings over 20 years of mining experience to Goldcorp, most recently as head of exploration at Randgold Resources.  Paul holds a Bachelor of Science in Geology from Kingston University in the UK, as well as a Master of Science in Mineral Exploration and Mining Geology from Leicester University in the UK.

Jason Attew has been appointed SVP, Corporate Development & Strategy, reporting to Russell Ball, EVP and Chief Financial Officer ("CFO").  Jason will lead the optimization of the Company's portfolio of assets, while evaluating new opportunities that are consistent with the strategy of increasing net asset value per share.  Jason is a mining and metals banking executive with over 20 years of experience and holds a Bachelor of Science from the University of British Columbia, as well as a Master of Business Administration from Queen's University in Ontario.

Wade Bristol has been appointed SVP, Canada, reporting to George Burns.  Wade joined Goldcorp in July 2014 as the Vice President, Mine Improvement & Support.  Prior to Goldcorp he served in various General Manager capacities for Newmont Mining in North America.  Wade has a Bachelor of Science in Mining Engineering Degree from Montana Tech of the University of Montana.

Steven Thomas has been appointed to the new role of CFO, Canada, reporting to Wade Bristol and David Splett has been appointed to the new role of CFO, Latin America reporting to Joe Dick, SVP, Latin America.  As part of the regional leadership teams, Steven and David will provide financial analysis, interpretation and metrics to facilitate strategic decision making related to the management of the regional businesses.  

Steven brings over 30 years of financial experience, with the last 13 years in the mining industry with De Beers Canada Inc.  Steven holds a Bachelor of Science Joint Honours Degree in Accountancy and Economics from the University of Wales in the UK, and is a Fellow of the Institute of Chartered Accountants.    

David brings with him over 24 years of experience in the resource industry, most recently as VP Finance for Mosaic Corporation.  David holds a Bachelor of Arts, Economics from the University of Regina, a Master of Arts, Management Systems from the University of Hull in the UK, as well as an MBA from Queens University in Ontario and is a Certified Management Accountant.

During the second quarter of 2016, the Company began implementing a company-wide program to optimize all areas of Goldcorp's business and deliver $250 million in sustainable annual efficiencies by 2018.  Cerro Negro began the implementation of a substantial workforce reduction and along with other improvement initiatives is expected to provide increased efficiencies of approximately $65 million.  In addition, approximately $55 million of administrative cost savings have been identified through the reduction of employees at corporate and regional offices by approximately one-third as part of the broader decentralization effort.  The Company is undertaking a comprehensive optimization effort at each of the mine sites that is expected to allow it to achieve the balance of the $250 million target.

FINANCIAL AND OPERATING RESULTS REVIEW

Net loss and net loss per share in the second quarter of 2016 and the net earnings and net earnings per share in 2015 were affected by, among other things, the following non-cash or other items that management believes are not reflective of the performance of the underlying operations:

Total cash costs on a by-product basis for the second quarter of 2016 were $728 per ounce compared to $547 per ounce for the second quarter of 2015.AISC for the second quarter of 2016 were $1,067 per ounce, compared to $853 per ounce in the second quarter of 2015.  The higher AISC was primarily a result of lower sales volumes at Pe?asquito, Cerro Negro and Red Lake, partially offset by lower production costs and the favorable impact of the strengthening US dollar against the Argentine and Mexican pesos and the Canadian dollar. 

As of June 30, 2016, the Company had total liquidity of approximately $3.2 billion, including $0.3 billion in cash, cash equivalents and money market investments and $2.9 billion in available credit.  The Company's $3 billion revolving credit facility was recently extended by a year to June 22, 2021. 

OPERATIONS REVIEW AND GUIDANCE

The Company reconfirmed 2016 gold production guidance between 2.8 and 3.1 million ounces at AISC between $850 and $925 per ounce. Third and fourth quarter production is expected to increase over the second quarter as Pe?asquito returns to normal operations after its maintenance shutdown and grades are expected to increase at a number of mine sites.  In addition, AISC are expected to decrease in the third and fourth quarter as compared to the second quarter of 2016 as a result of higher production.

With the approval to proceed to construction of the PLP and the Materials Handling Project, and the addition of the Coffee Project, growth capital for 2016 is expected to increase by approximately $90 - $100 million to approximately $190 - $200 million.   

PLP was approved by the Board on July 27 and mobilization will commence in August 2016.  The project is expected to increase overall gold and silver recovery by treating the zinc tailings before discharge to the tailings storage facility. Based on a feasibility study entitled "Feasibility Study Report Pe?asquito Metallurgical Enhancement Project" completed December 2015 by Fluor Canada Inc. (the "feasibility study"), the PLP is expected to recover approximately 40% of the gold and 48% of the silver currently reporting to the tailings. PLP is expected to add annual incremental production of approximately 100,000 – 140,000 gold ounces and approximately 4.0 – 6.0 million silver ounces.  Commercial production is expected in the first quarter of 2019.    

Based on the feasibility study the project is expected to have an after-tax internal rate of return ("IRR") of approximately 17% at long-term gold and silver prices of $1,250 per ounce and $18.00 per ounce, respectively. Every $100 change in the gold price and $1.50 change in the silver price would impact the project IRR by approximately 2.5%.

The expected capital investment of approximately $420 million will be funded over the next three years in the following amounts:

PLP operating costs are expected to be approximately $1.75 per tonne.  The project has a minimal impact on the site water balance and will not require upgrades to the water supply as the Pyrite Leach processing plant recirculates existing plant processing water.