This Gold Mine Can't Blossom for Goldcorp


Gold closed Friday at $1,290 per ounce, down around 20% for the year and making Marigold gold mine in Nevada just too expensive to continue operating. Jointly owned by Goldcorp and Barrick Gold , they've said they're hanging a "for sale" sign on the project.

Marigold mine, Nevada. Source: Barrick Gold.

As gold miners see their shares plunge along with the price of gold, most outstripping the losses of the precious metal itself, they've stepped up efforts to shed themselves of their least productive assets. Newmont Mining sold its Hope Bay project in Canada earlier this year and recently sold its Midas mine in Nevada, while Gold Fields spun off all but one of its South African assets as it became uneconomical to operate them anymore, particularly in light of the labor disputes that continually erupt there.

Barrick itself has already sold three western Australia gold mines this year (to Gold Fields no less) and on its conference call two weeks ago, identified 10 mines in its portfolio that are high-cost operations that account for 25% of its total assets and on which it wants to reduce its influence. Marigold is the most expensive of its properties, with all-in sustaining costs running at $1,609 per ounce through September. Goldcorp, which owns two-thirds of the project, identifies its portion of the mine's all-in sustaining cash costs at $1,476 per ounce.

With other Barrick projects like Bald Mountain running at $1,800 per ounce in cash costs, investors can presume that's high on the list to go, too. The "all-in sustaining costs" metric was developed by the industry to better reflect the varying costs of producing gold over a mine's life and incorporates costs related to sustaining production.

The Marigold mine produced 81,000 ounces of gold over the first half of the year, a small portion of the 2.4 million ounces total Goldcorp produced and 7.2 million ounces by Barrick, and with just under 40,000 ounces produced in the third quarter and a possible price tag of about $200 million on the project, certainly Barrick needs to get out while the getting's good.

The past two years have been tumultuous for Barrick as its stock plummeted and it fired its CEO. More recently, it threw in the towel on Pascua-Lama in Chile as costs spiraled out of control and government intransigence bogged down on moving it forward. Although Goldcorp is in a somewhat better place with its all-in costs declining substantially from the second quarter, they rose year over year and eliminating high-cost projects like Marigold will improve its profile further.

Gold still finds itself in a difficult position, but I remain confident that long term, because of the structural problems global financial systems have built up and continue to drive toward the precipice, it will be an attractive investment, at least physical gold anyway. In the meantime, though, expect to see further announcements by gold miners like this one that seek to shed their least profitable operations.

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