Good news for Goldcorp Inc. ( GG ) investors. After a brief period of disruptions to operations at Penasquito, caused by an entrances blockade, the Canadian miner can start the mining activities at its Mexican gold mine again.
The blockade – set up last Thursday by protesters who asked Goldcorp to keep its word on supplying the neighboring communities with water – was removed. According to Goldcorp, reports Reuters.com, this interruption at Penasquito's operations will not have any negative impact on gold production.
Investors can let out a great happy sigh because the Mexican Penasquito gold mine is one of Goldcorp's six core assets – excluding the assets of the company's associates – with a yearly gold production of approximately 20% of Goldcorp's total output and with a volume of gold ounces sold of approximately 19.5% of the Canadian miner's total volume.
Just to give a better idea about the importance of the Penasquito mine to Goldcorp's economics and the reason why interruptions can cause acute damage to the Canadian miner's shareholders in terms of market value depreciation: From the Mexican mine, Goldcorp derives something like between 29.5% and 30% of the company's total revenue.
In addition, since Penasquito mine is one of the company's costly assets with an AISC of $825 per ounce of metal sold in 2016, after Porcupine (285,000 ounces of gold production at an AISC of $900 per ounce of gold sold in 2016), Red Lake (300,000 ounces at an AISC per ounce of $870) and Eleonore (315,000 ounces at an AISC per ounce of $985), any prolonged interruption at its operations would have caused fixed costs to be spread over a lower volume of production and therefore a higher AISC per ounce of gold sold. This would have led to negative consequences not only on Goldcorp's total gold production but also on revenue and earnings for the next quarter and full fiscal 2017.
Less revenue and earnings would have meant missing expectations on the next Goldcorp earnings announcement that, plus a downward in analysts' re-rates on the Canadian gold stock because of a worsening in its production outlook, could – of course – have impinged on the share price of Goldcorp if the blockage had been prolonged at Penasquito .
For full fiscal 2017, investors can then be sure that Goldcorp will keep its promise on gold production and costs.
Production is expected to come in at something like between 2.375 million ounces and 2.625 million ounces of gold at an AISC of approximately $850 per ounce of gold sold. Penasquito is expected to contribute to Goldcorp's total production with 410,000 ounces of the yellow metal or 16.4% at an AISC of $825 per ounce of gold sold or $25 per ounce lower than the overall AISC.
With a bullion that is projected to close the full fiscal 2017 above last year's level of $1,250.74 per troy ounce, when Goldcorp generated a net profit per share of 31 cents on revenue that came in at $3.51 billion, it would be a shame if the Canadian miner couldn't take full advantage of rising precious metal prices with all of its core assets and especially with one of them – Penasquito – that can bring a significant contribution, in terms of production and revenue, to Goldcorp's totals.
Goldcorp is trading at $13.26 per share with a market capitalization of $11.47 billion, a price-book (P/B) ratio of 0.77, a price-sales (P/S) ratio of 2.87, a price-earnings (P/E) ratio of 22.23 and an EV to EBITDA ratio of 8.71.
Goldcorp has a forward P/E ratio of 28.74 and an EVO – Goldcorp's enterprise value per ounce of gold reserves – of $349.27.
Goldcorp has an average target price of $16.74 and a recommendation rating of 2.5 out of 5.
Disclosure: I have no position in Goldcorp.