Mexican Gold Mine Holds Promise For A Beleaguered Country

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Canadian-based mining company Goldcorp is playing well south of the U.S. border.

Why else would Mexican President Felipe Calderon attend Goldcorp’s (GG) recent opening ceremony for a new mine in Penasquito?

The president lauded Goldcorp for its $1.7 billion investment and for creating thousands of jobs. Once fully operational, the mine in the north-central region will be Mexico’s largest. What’s good for Mexico is good for Goldcorp.

The Penasquito mine is expected to produce about 1 million gold equivalent ounces per year for Goldcorp. Commercial production is set to start in the third quarter and fully ramp up by early 2011 to 130,000 tons per day.

While gold prices hover near a record-high $1,200 an ounce, some gold analysts predict prices will go even higher. They reason that investors will continue to turn to gold as a hedge against the falling euro and other global economic woes.

Biggest Mine
Penasquito’s production would put the mine on par with Goldcorp’s biggest gold mining asset, known as Red Lake, which is in northwestern Ontario. And that’s taking into account Red Lake’s expansion over the next couple of years. “It’s of huge importance to Mexico and the company,” said Scotia Capital analyst David Christie.

By market capitalization, Goldcorp is the second largest mining company in North America after Barrick Gold (ABX). Productionwise, it’s third after Barrick and Newmont Mining (NEM), both also based in Canada, a country with a long history of gold mining.

Goldcorp tends to trade at a premium to its large-cap peers due to its growth profile, analysts say. It expects to produce 2.6 million ounces of gold this year at a cost of $350 an ounce, up from 2.4 million ounces in 2009 at a cost of $295 an ounce.  Its five-year forecast calls for a 50% increase due in large part to new production at Penasquito, where costs are viewed as relatively low.

Other new projects are lined up, too, such as Pueblo Viejo in the Dominican Republic, which is expected to start gold production in 2011. Management says the Dominican mine will produce more than 400,000 ounces of gold a year in the first five years.

“Goldcorp has excellent assets, and they’re very long-lived assets,” said analyst Adam Graf of Dahlman Rose & Co. “They are high margin and leveraged to the underlying commodity, which is gold.” The higher the price of gold, the better for gold producers, especially if production costs remain relatively low.

Newstrike Capital Inc. has entered into a definitive agreement  to acquire 100% of the “Ana Paula Project” from a wholly-owned subsidiary company of Goldcorp.

Ana Paula is an advanced exploration stage gold project, located in the north-central part of the State of Guerrero in southern Mexico. The Ana Paula Project consists of two contiguous and two discrete concessions covering 7,622 hectares that collectively comprise internal claims to Newstrike’s existing land position. Newstrike’s entire land position in the Guerrero Gold Belt now covers just over 88,952 contiguous hectares.


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