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TABLE OF CONTENTS Mar 24 - 30, 2014 Volume 100 Number 6 - 0 comments

COO Burns on Goldcorp's cost-cutting drive

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By: Matthew Keevil

VANCOUVER — In a climate of lower gold prices and rising costs, gold producers have been focusing on improving operations at established mines, and Vancouver-based Goldcorp (TSX: G; NYSE: GG) is no exception. The company’s Operating for Excellence program is in full swing, and executive vice-president and chief operating officer George Burns sat down with The Northern Miner talk about cost control, new technologies and optimization opportunities at Goldcorp’s mines.

The efforts appear to be paying off already: Goldcorp posted record fourth-quarter gold production of 767,700 oz. gold at all-in sustaining cash costs of US$810 per oz. The quarter contributed to an 11% year-on-year jump in annual production, with the company cranking out 2.7 million oz. gold in 2013. The company’s full-year, all-in sustaining costs of US$1,031 per oz. were lower than guidance estimates that were pegged at between US$1,050 and US$1,100 per oz.

“When I first got started with the role around a year and a half ago, I saw a big opportunity. The way I look at it there are two aspects to positive change within existing operations,” Burns said during an interview at the recent Prospectors & Developers Association of Canada convention. “The first is on the business side, which focuses on things like increasing production and efficiencies, developing better mine plans, and working on recoveries and processing alternatives. The second is the people side, and that’s been a big focus for us. We want our operators to own this opportunity.”

One change Goldcorp has adopted involves rethinking mine sequencing and strategy in light of higher cut-off grades driven by lower gold prices. For example, at the company’s flagship Penasquito polymetallic mine in Mexico’s Zacatecas state, Goldcorp crafted a new mine plan that shortens the mine life by six years.

Goldcorp cut out its last two phases of pit development, and resequenced its mine plan for “higher profitability ounces.” The mining rate is on track to expand to 110,000 tonnes per day in 2014, and could contribute between 530,000 and 560,000 oz. gold during the year. The higher average grades, along with increased throughput, are expected to boost production.

“We all recognized that cut-off grades needed to rise,” Burns said. “When you’re looking at a multi-decade mine plan at an asset like Penasquito, we had some push backs in the back half of the mine life that are high strip ratio. So some of those ounces simply become uneconomic, and then you go ahead and look at sequencing, where you identify the best design for cash flow. I think our new five-year plan is stronger, with higher production and superior revenue profiles.”

Burns outlined two more initiatives at Penasquito that Goldcorp hopes can boost profits. The first is adding to the milling circuit, which will help improve the polymetallic credits. Operations  are producing doré bars via a leaching element, as well as lead and zinc concentrates though a central mill. At the moment Goldcorp isn’t processing any of Penasquito’s copper content, which ends up as a contaminant in the lead concentrate or comes out in tailings.

For the past few years Goldcorp has been testing out a milling addition that would produce a third, copper concentrate for more revenue and less smelter penalties. Burns said the prefeasibility study on the addition could be ready this year. He added that “our technical and operating teams have come up with a way to float the copper concentrate and developed a technology so we can remove that arsenic and antimony. The arsenic ends up being stabilized as the mineral stibnite, which goes out to tailings. In addition, we’ll actually produce the antimony product . . . it goes from being a penalty issue to a revenue issue. We’re finishing up the test work on that as we speak.”

A second research initiative at Penasquito involves gold recoveries. Burns said there is a “good chunk” of gold tied up with pyrite that isn’t recoverable during flotation, and so Goldcorp is looking at leaching the gold out of the pyrite.

Goldcorp is also looking at new technology. For instance, at the company’s Red Lake gold mine in Ontario, it’s using an automated mining scoop that can operate between shifts when employees cannot enter the mine due to ventilation issues.

At the Éléonore gold mine under construction in Quebec — which is expected to achieve production in late 2014 — the company is installing advanced systems for more automated technologies.

“It’s early days, but technological advances offer major opportunities in terms of productivity,” Burns said. “And Éléonore is a brand-new mine, so we have a ‘communication backbone,’ which you really need in order to use some of these automated processes. In terms of training over the past five years, we’ve done a lot with simulators, so all of our people are familiar with it.”

In another area of innovation, Goldcorp is using ultra high-intensity blasting at Penasquito to improve core fragmentation, which has enhanced productivity and efficiency.

Unlike many companies, Goldcorp hasn’t relied on outside consultants or firms to work on its production initiatives. Burns says the company developed its strategy internally, and expanded its team to deliver results. 

Goldcorp also created a “director of operational excellence” role, and maintains regional project managers and at least one full-time employee that monitors the program at each of its operating mines.

“My own view is pretty bullish on gold, so I think those long-term reserve prices are conservative,” Burns added, referencing the company’s lowered US$1,300 per oz. price cut-off, which dropped its reserves by 15% this year.

“In our operating strategies we want to be conservative, but we want to identify where there are opportunities for value creation if the gold price takes off again. It’s important to be ready on the downside and the upside. And that’s what the Operating for Excellence program is all about. I think we’re getting a lot better at having our people focus on that. It’s about being ready and adapting to change,” he said.

Goldcorp shares have traded within a 52-week window of $21.87 and $34.71, and closed at $29.97 per share at press time. 

The company has 812 million shares outstanding for a $24.3-billion market capitalization, and reported US$625 million in cash, along with a US$2-billion undrawn revolving facility to end 2013.

Goldcorp expects a 13–18% increase in gold production during 2014 to between 3 million and 3.15 million oz. 

All-in sustaining costs are projected to decrease to between US$950 and US$1,000 per oz.

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To focus on the more profitable ore at its Peñasquito gold mine in Mexico (above), Goldcorp has eliminated the last two phases of pit development and reduced the mine life by six years. Credit: Goldcorp
To focus on the more profitable ore at its Peñasquito g...
George R. Burns, executive vice-president and chief operating officer of Goldcorp.
George R. Burns, executive vice-president and chief ope...

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