Engineering & Mining Journal

APR 2016

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GAROFALO INTERVIEW 26 E&MJ; • APRIL 2016 www.e-mj.com duction with low capital intensity," Garo- falo said. As an example, the Hoyle Deep pro- ject consists of material-handling im- provements combined with a new internal shaft (winze), which will allow the mine to expand production by 40% over time. At Peñasquito in Mexico, the Pyrite leach project will retrieve precious met- als currently reporting to tailings through the use of enhanced recovery processes. "Again, this is a relatively low capital in- vestment and we expect to make an in- vestment decision on that by the middle of 2016, and it will add to the production profle within fve years," Garofalo said. Goldcorp plans to install a winze at Musslewhite in Canada to improve eff- ciency and extend the mine's life. That's counter-intuitive, as a higher mining rate would shorten a mine's life. However, economies of scale will lower the eco- nomic cut-off for the mine, which will move some of the resource ounces into the reserve category. It's also a com- pelling economic proposition, Garofalo explained, and the company expects to make a decision by midyear. Garofalo places Red Lake's HG Young and Cochenour projects in the same cat- egory. Both projects access high-grade deposits within an existing complex and allow the operation to extend high-grade mining beyond the end of this decade. "Our existing high-grade zone is defned through the end of this decade," Garofalo said. "Ideally, we want to sequence HG Young and/or Cochenour to begin after that to perpetuate high grade mining at Red Lake and make effcient use of the infrastructure there." Camino Rojo is expected to be a stand- alone oxides heap-leach operation 50 km from Peñasquito. It is another high IRR proposition that would add to the com- pany's production profle within its fve-yr horizon. Goldcorp acquired the Borden project in Timmins, Ontario, a location where they have spare concentrator ca- pacity as the company has exhausted reserves at the 100-yr-old Dome under- ground mine. "All of these projects are quick and relatively inexpensive to build and they will generate high IRRs," Garo- falo said. Cerro Negro Benefts From Regime Change in Argentina Argentina's new President Mauricio Mar- ci made immediate changes upon tak- ing offce that directly benefted mining operations, such as Goldcorp's Cerro Negro mine. "Up until the election, the focus was to expatriate as much capital from Argentina as quickly as possible," Garofalo said. "Now, we are looking at opportunities to optimize exploration efforts around Cerro Negro. It's a brand new camp and we have frst mover ad- vantages there, so we want to drill it more aggressively. We were more reti- cent to do that under the previous re- gime. Marci's administration has al- ready opened the economy dramatical- ly in a short period of time. It has given us more confdence to put more capital back into the country. Even though Cerro Negro was a $1.7 billion project, it will probably end up being under-capital- ized for what we are going to fnd there geologically. Cerro Negro has already seen signif- cant positive implications. The operation is benefting from a free and foating lo- cal currency, which has devaluated 30%. "About 70% of our operating costs at Cerro Negro are denominated in local currency," Garofalo said. "So there is an immediate beneft. That is rare in Lat- in America. Normally, it's just the labor costs and everything else is imported." Signifcant import controls forced Goldcorp to source locally, which has been a less-than-ideal situation. "That brought ineffciencies into our procure- ment processes," Garofalo said. "We have had to pay through the nose for substan- dard materials from substandard suppli- ers. As they relax import controls, we can get the best supplies at the best prices. So we expect to see signifcant effciency improvements in our procurement pro- cess going forward." Shareholder Confdence Mathematically, the decisions make sense on paper, but how would shareholders view these decisions? "Look, in the fourth quarter, we underperformed by 10%," Garofalo said. "That was humbling. It was also commensurate with recent per- formance. We will take responsibility for that. And we will take responsibilities to ensure that it does not happen again by having the appropriate accountabili- ties in place." Goldcorp will begin transitioning away from command-and-control at the head offce to a decentralized organization with accountabilities at the mine site level. "Mine managers will be entrusted with a certain amount of the shareholder's cap- ital," Garofalo said. "We have to provide them with clear criteria as far as expecta- tions. We want to push down accountabil- ity for increasing the NAV of their busi- ness by directing their exploration dollars. They have to grow the value of their busi- ness. Whatever ounces come out of that is a secondary consideration. If they are increasing the value of the business and maximizing return on capital, the ounce number will come out rather than the oth- er way around where the ounce number drives the mine plan." Goldcorp is not the only gold mining company to reduce production guidance and some have offered more aggressive guidance on cost control. Does he wor- ry that Goldcorp might get left behind if they end up at the high end of their cost guidance? "Not at all," Garofalo said. "Each of these projects allow us to drive economies of scale. Unit costs will come down. We also used conservative ex- change rates. Some of the targets put out by our competitors are more aspirational than anything based on reality." "We don't want to get ahead of our ski tips again," he said. "We want to pro- vide achievable milestones for each of our projects. We will work very systemat- ically in a very engineering-oriented way through each of these projects so we can make a strong case for the economics."

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