Goldcorp’s Garofalo stresses quality over quantity

David Garofalo has poured more than a million dollars of his own money into his company's stock in recent months.

For the time being, that is not a winning investment for the chief executive of Goldcorp Inc. Shares of the Vancouver-based gold miner have slid from above $26 in early July to below $20 as the company's earnings have generally disappointed analysts' expectations and its gold production has declined from levels of a year earlier.

But Mr. Garofalo, who took over as Goldcorp's chief executive at the end of February, shrugs off the market's less-than-enthusiastic reaction. Investors, he suggests, should get used to the idea of focusing on quality rather than quantity when it comes to judging precious-metal investments.

"If investors are uncomfortable with a smaller gold company, just generally speaking you're going to have difficulty investing in the space at all," he says. "The industry is shrinking, and necessarily so" because of a lack of good geological prospects. "So it has to focus on profitability."

In his first few months on the job, Mr. Garofalo has shaken up Goldcorp's senior executive ranks and replaced most of the company's mine managers. But as gold prices have surged this year, Goldcorp's share price gains have lagged far behind its peers in the sector.

The company announced this week that it made $59-million in the third quarter, an improvement from a loss of $192-million a year earlier. However, the results still fell well short of analysts' forecasts.

The shortfall reflects a series of problems at the company's mines, ranging from labour unrest at the company's Cerro Negro mine in Argentina to unexpectedly difficult geology at its Eleonore mine in Quebec.

Mr. Garofalo is addressing the issues while attempting to drive down the company's all-in sustaining costs (AISC), a measure of all the expenses involved in producing an ounce of gold. AISC stood at $812 (U.S.) an ounce in the third quarter, a substantial reduction from $858 an ounce a year before.

One of his top goals is to identify $250-million a year in savings and he says he's 60 per cent of the way there. But the company's cost-cutting drive has run into problems, particularly at the Cerro Negro mine.

The mine has been hit by work stoppages triggered by Goldcorp's drive to reduce the work force from 2,400 people to 1,600 and those stoppages hurt production in the third quarter. However, the reductions have been largely completed and the focus now is on training local workers to bring them up to North American productivity levels.

More labour unrest may lie on the horizon, Mr. Garofalo acknowledges, but he says that won't deter the company from seeking greater efficiency at the mine. "It's really a microcosm of what's happening in Argentina generally. The entire country has been hit by labour unrest as [Argentine] President [Mauricio] Macri attacks the same symptoms of economic malaise that we're attacking, notably labour productivity."

While Goldcorp is trying to produce gold more efficiently, it is also working hard to expand its reserves.

Mr. Garofalo says it has just begun to scratch the exploration potential of the areas around Eleonore and Cerro Negro. It's also drilling at its recently acquired Coffee project in the Yukon and expects gold production to commence there in 2020.

He's particularly excited by the potential of the new Dome Century project at the company's 105-year-old Porcupine camp in northern Ontario, which lies under another mine that the company exhausted a few years back. Drilling has established an indicated mineral resource of 4.5 million ounces at the site, and while more work must be done to verify the size of the deposit, he's optimistic.

"It has the potential to completely change the complexion of the camp," he said. "We're talking about developing an open pit under existing infrastructure…[which means] the capital intensity will be quite low. There's electrical power there, there are roads, there's a work force, so it won't require a big capital spend to drive production."