Engineering & Mining Journal

APR 2016

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GAROFALO INTERVIEW APRIL 2016 • E&MJ; 25 www.e-mj.com practical long-term gold price of $1,100/ oz rather than $1,300/oz. Its proven and probable gold reserves decreased by 18% to 41 million oz. The decrease in reserves was driven primarily by 5.3 million oz of low margin reserves being reclassifed to resources at Los Filos. For 2015, Goldcorp produced 3.46 million oz and all-in sustaining costs (AISC) were $894/oz including inventory impairments. Excluding organic growth projects, annual gold production guid- ance for the years 2016-2018 will now range between 2.8-3.1 million oz at AISC between $850/oz and $925/oz. So, why did Goldcorp need to reset ex- pectations so signifcantly? "There were three distinct issues within our portfolio that we needed to address and we needed to build in suffcient contingency for the inherent risk," Garofalo said. Top of the list was Cochenour. Goldcorp acquired the Gold Eagle mine about eight years ago under the expectation that there would be a 5-million-oz deposit there. "That fgure was extrapolated from limited drilling," Garofalo said. "Mother Nature has a way of humbling you in the mining business. Clearly in Cochenour's case, when we got underground, the geology was much more complex. The orientation was different from what we expected." Cochenour will require additional work. "It's not a lost cause," Garofalo said. "Ul- timately, we will produce gold there. Right now we do not have a clear enough line of sight into the resource profle to perform a proper engineered block model." Goldcorp had included production from Cochenour in its long-term guid- ance, Garofalo explained, but it had in- suffcient engineering to support that de- cision. "We had to take a step back and reboot in a way," Garofalo said. "We have invested $500 million in development capital and rehabilitated the Cochenour shaft. We are drifting along the tram level right into the heart of the deposit. We are in it drilling and sampling. We will have a better understanding of how the ore per- forms, which will increase the confdence in the resource. Then we will be able to build a block model." Once they understand the geology, the capital intensity to bring production online at Cochenour will be considerably lower. "It's not all bad news at Cochenour, but we need time to defne the deposit and the economics to make the invest- ment case," Garofalo said. "By the mid- dle of this year, we will have a defnitive game plan." Éléonore has also turned out to be a bit more challenging geologically than Goldcorp expected. About 10% of the deposit has complex folding and fault- ing features. That 10% of the deposit contains about 40% of the gold because there is a preponderance of high grade gold around the folding and faulting. "We had to build the actual realized dilution into our mine plan going forward," Garo- falo said. "We have a plan to bring that dilution back down to our original reserve model, but until we do, we can't overlook it in our projections going forward. We had to take a bit of a haircut in our pro- duction guidance from Éléonore." 'Haircut' would be a nice segue for a discussion of Los Filos in Mexico. Gold production at Los Filos during the fourth quarter was 74,400 oz at an AISC of $2,131/oz. "Because of lower gold pric- es, we had to reclassify a large portion of the reserves into resources," Garofa- lo said. "After adjusting to $1,100/oz, those pit laybacks just didn't make sense, especially with some of the geotechni- cal issues we have been experiencing there. The strip ratios doubled from what was originally anticipated. Those ounces are not lost; they are still in the resource category. Ultimately, we think we will be able to bring those ounces back into reserves either through higher gold price or trying to fnd ways to econ- omize operating costs and lowering the economic cut-off. "At Los Filos, we will have to fnd ways to bring those costs down," Garofalo said. "We think we can do that. Our social pay- ments are high. We pay more than $100/ oz to local communities. At the current reserve profle, we have less than fve years of mine life remaining. There might be some scope to revisit those community payments to sustain operations. There are other effciencies that we could engineer into the operation as well." The Organic Growth Upside Goldcorp has eight projects in various stages of execution. They could add ap- preciably to the company's production profle and in seven cases improve the existing mine's net asset value (NAV). The exception would be Corridor, which is a greenfeld project. "All of these projects offer the opportunity to build new pro- Goldcorp.'s Reserves & Resources (millions of oz) Reserves Resources Operation Location 2015 2014 2015 2014 Peñasquito Mexico 0 9.87 0 9.70 0 2.700 0 4.50 Pueblo Viejo (40%) Dominican Republic 0 5.97 0 6.21 0 5.150 0 4.20 Éléonore Canada 0 5.35 0 4.97 0 0.810 0 1.06 Cerro Negro Argentina 0 4.66 0 5.26 0 1.280 0 0.65 El Morro (50%) Chile 0 4.46 0 6.24 0 0.061 0 0.85 Porcupine Canada 0 2.13 0 2.98 0 1.590 0 7.61 Red Lake Canada 0 2.08 0 2.06 0 2.270 0 2.34 Musselwhite Canada 0 1.72 0 1.66 0 0.350 0 0.18 Camino Rojo Mexico 0 1.62 0 1.85 0 7.530 0 6.20 Los Filos Mexico 0 1.46 0 6.77 0 9.650 0 4.13 Borden Canada 0 0.86 0 0.00 0 0.490 0 0.00 Other 0 0.55 0 1.88 0 5.899 0 4.43 Total 40.73 49.58 37.780 36.15 Goldcorp's Mine-by-Mine Production Guidance 2015 Actual (oz) 2016 e (oz) Peñasquito 0, 860,300 520,000-580,000 Cerro Negro 0, 507,400 475,000-525,000 Pueblo Viejo (40%) 0, 381,700 400,000-440,000 Red Lake 0, 375,700 300,000-330,000 Éléonore 0, 268,100 250,000-280,000 Porcupine 0, 274,300 250,000-275,000 Musselwhite 0, 270,300 240,000-260,000 Other* 0, 526,600 380,000-440,000 Total 3,464,400 2,800,000-3,100,000 *Other mines include Los Filos, Marlin, Alumbrera (37.5%) and for 2015 production from Wharf (divested).

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