Will Goldcorp Turn a Profit on Its Eleonore project?

The latest news from Goldcorp (GG) is that the mining company started gold production in its Éléonore project. Currently, the company plans to produce around 50,000 ounces of gold this year and ramp up to full production capacity by 2018. Considering the currently low prices of gold, is this mine still a profitable endeavor? Also, let’s review the potential impact of the production uncertainty on this project’s profitability.

Goldcorp expects this project to have low production costs — under $400 per ounce. As of the second quarter, the company’s cash cost of by product was $470 per ounce and $643 per ounce for co-product. So brining the cash cost below $400 could reduce the company’s production cost in the coming years. But this figure doesn’t take into account the capital expenditure Goldcorp put into this project.

The company’s Éléonore project is expected to reach full production by 2018. Moreover, Goldcorp predicts an annual production of 600,000 ounces of gold for the life of the mine – around 15 years. For the valuation of this project, let’s be a bit conservative and assume 600,000 ounces of gold per year starting in 2018 for 12 years – this comes to a total output of 8.5 million ounces of gold.

Also, let’s assume a cash cost of $400 per ounce with an annual 2% inflation gain, gold prices at $1,200 per ounce and discount rate of 8%. Based on these assumptions we get a very crude estimate of the net present value of this project at nearly $900 million.

The rest of this analysis is at Seeking Alpha

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