Goldcorp's Penasquito Challenges

The management of water resources at Goldcorp's (GG) Penasquito mine in Mexico is far from the only challenge facing the company at the mine, as a court in the Mexican state of Zacatecas has voided the lease on some of the land, while "ordering the territory be returned to the farmers."

Of the 23,000 acres included in the gold mine, approximately 1,483 acres have been ordered to be returned to the farmers.

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Goldcorp (GG) Lowers Production Guidance on Drought, Seismic Activity

Goldcorp (NYSE: GG) lowered its gold and by-product metal production estimates because of ongoing drought and seismic activity at its two leading mines.

For the year, Goldcorp dropped its overall production estimates from its previous guidance of 2.6 million ounces to a range of 2.35 million and 2.45 million.

Pressure came from its top Red Lake mining operations in the first half, while in the second half its Peñasquito property will be under pressure.

Because of decreased production expectations, the company altered its total cash cost guidance from $250 to $275 an ounce on a by-product basis to $310 to $340 an ounce; and from $550 to $600 an ounce to $625 to $650 an ounce on a co-product basis.

As for by-product metals, production guidance for copper remained the same at 110 million pounds. Silver production projections were lowered from 34 million ounces of silver to a range of 30 million to 31 million ounces; from 400 million pounds of zinc to a range of 310 million to 325 million pounds of zinc; and from 180 million pounds of lead to a range of 155 million to 160 million pounds.

CEO Chuck Jeannes said this about the two major mines:

"At Red Lake, we look forward to the resumption of mining in areas of the High Grade Zone that have been inaccessible due to de-stressing activities, but grade inconsistencies in the Footwall Zone experienced in the first six months of 2012 necessitate a conservative approach with regard to forecasting production during the second half of the year."

"At Peñasquito, the team is assessing opportunities to address water deficits as soon as possible. We are optimistic that sufficient water will be secured to accommodate long-term throughput forecasts but until those sources are secured, we have reduced the forecasts for ongoing throughput and production. We remain encouraged that the ore body continues to meet expectations with respect to grade and recoveries."

Expectations are plan production for the rest of 2012 at Peñasquito will be from 98,000 to 107,000 tpd, all of which will cut into gold, silver, lead and zinc production.

Year over year, gold production in the second quarter fell from 597,100 ounces to 578,600 ounces.

Shares of Goldcorp plunged by almost 10 percent Wednesday, dropping $3.58, or 9.74 percent, to $33.17.

Silver Wheaton (SLW) Getting 7 Million Ounces of Silver from Goldcorp (GG) Annually

Goldcorp (NYSE:GG) is projected to be among the top gold mining performers in 2011, based upon its new silver and gold mine, Penasquito.

The good news for silver royalty company Silver Wheaton (NYSE:SLW) will get about 7 million of the estimated 28 million ounces of silver produced from the mine on an annual basis.

That adds to the already significant silver the royalty company has under contract at this time.

To get an idea of the probability of production reaching those levels, in the first quarter of production, Penasquito produced 4.6 million ounces of silver. The mine has proven and probable silver reserves of about 1.1 billion ounces; not a bad future for Silver Wheaton.

Silver Wheaton closed Tuesday at $42.49, gaining $0.40, or 0.95 percent.

Goldcorp (GG) Among Top Gold Equities

Goldcorp's (NYSE:GG) strategy of expanding mining projects by acquiring contiguous deposits is working well for them, and not only extends the life of their mining facilities, but allows them to do it somewhat cheaply, as they can use the existing infrastructure they have in place.

The long-term value of bringing Penasquito into production will also enhance the company over time.

Strong cash flows are also empowering the company to offer profits back to shareholders in the way of dividends, which have more than doubled over the last 12 months.

With global conditions offering support once again to gold prices, it appears Goldcorp could be poised for a breakout, and the investment window may be short to get in at a good price.

Goldcorp closed Monday at $48.18, gaining $0.91, or 1.93 percent.

Goldcorp (NYSE:GG) Announces Commercial Production Hit at Penasquito

Although the first lead and zinc concentrates were produced by Goldcorp (NYSE:GG) at their Penasquito project in Mexico in 2009, the company decided to wait until the second 50 000-t/d mill and flotation line was operational before making the declaration it had officially hit commercial production, which they now have done.

Goldcorp is on track to finish construction on high-pressure grinding roll circuit in October, which will produce 30,000 tons a day, which will reach as high as 130,000 tons a day in early part of 2011.

The company's estimate of 180,000 ounces of production from the project remains in place for 2010.

COO Steve Reid said, “Peñasquito has achieved every significant operational milestone on schedule, culminating in today’s declaration of commercial production.”

The Penasquito project, which is estimated to have a 23-year lifespan, should produce 500,000 ounces of gold, 28 million ounces of silver, 450 million pounds of zinc, and 200 million pounds of lead on an annual basis.

Third of Goldcorp (TSE:G) Cashflow to Come From Mexico

About a third of future cashflow for Goldcorp (TSE:G) (NYSE:GG) is projected to come from Mexico, which is ramping up its latest project in Mexico, the Penasquito mine, in the third quarter.

Goldcorp invested about $1.7 billion in the project, which is expected to produce close to 1 million gold equivalent ounces a year for the company.

By the early part of 2011, the company should be working 130,000 tons a day.

Penasquito will match the largest existing gold project of Goldcorp, their Red Lake project in Ontario, which includes the expansion they're doing there over the next two years.

Investors are excited about Goldcorp because of their growth profile, which is estimated to bring up to 2.6 million ounces of gold in 2010, at a cash cost of $350 an ounce, an increase from the 2.4 million ounces produced in 2009 at $295 an ounce.

For the next five years the company is projecting a 50 percent increase in production, based for the most part on the Penasquito project, although they have other mines scheduled to come on line, like the Pueblo Viejo in the Dominican Republic, where gold production should launch in 2011, and estimates of 400,000 ounces of gold produced in the first five years.

Rising costs have put some pressure on margins and earnings, but the company still looks very solid, and with gold prices sure to continue rising, that'll be largely widened.

Costs have come under better control at Goldcorp and the gold mining industry in general, as energy and equipment costs has risen in response to growing demand.

Going forward, analysts are looking for profits for the year to grow 46 percent over 2009, to $1.17 a share, and another 41 percent in 2011.

Goldcorp (TSE:G) Earnings Preview

Goldcorp (TSE:G)(NYSE:GG) seems to be poised for another strong quarter of gold production, and earnings per share, while estimated to come in at 27 cents a share - lower than the 40 cents a share in the same quarter last year - still reflects a strong quarter for the company, while also improving significantly over the 9 cents a share in the last quarter.

Estimated gold production for last quarter is about 30,700 ounces at its flagship Penasquito mine alone, with a projected 180,000 for the all of 2010 there.

This year Goldcorp is expected to produce another record in their gold production, which last year came to 2.42 million ounces.

Very few, if any, gold producers can do it as inexpensively as Goldcorp, and they continue to be among the best in that reguard, with cost running at $289 an ounce on a total cash basis, while standing at $422 an ounce on a by-product basis.