SPINNING GOLD | David Garofalo, Goldcorp CEO, expects gold prices to rebound from five-year lows
Revenues were way up, profits way down–and neither fazes new Goldcorp CEO David Garofalo
It was a year of very highs and very lows for Goldcorp Inc., which produced more gold than ever in 2015. With annual revenues of US$4.4 billion, it jumped six spots on this year’s Top 100 list—despite recording a US$4.2-billion loss.
David Garofalo, who left the top position at HudBay Minerals Inc. to become Goldcorp CEO this past March, takes the long-term view on financial ups and downs. Typically, it takes at least a decade for a mining company to go from discovery of a new deposit to production. “By definition, mining companies are a collection of finite-life assets,” he explains. “We’re continually having to explore and develop new deposits in order to perpetuate our business, and that requires a very long-dated view. Quarterly results are very much fixated on the short-term operational performance.”
Garofalo points to the significant correction in gold prices over the last several years: from highs of more than $1,600 an ounce in 2012 down to an average of $1,153 in 2015. This was a primary reason for the $4.9-billion write-down in asset value that caused the eyebrow-raising red ink in Goldcorp’s books. “Those reserves were not necessarily lost,” he says. “They’re still in the ground, and at a higher gold price those reserves come back into the mine plans and ultimately could get recovered.”
Such is the volatility of gold, whose price is not governed by demand-supply fundamentals in the same way as other minerals. People use gold as a store of value instead of banks when interest rates are low. Thus, the indication by the U.S. Federal Reserve in late 2015 that it would raise rates caused the price of gold to plummet.
Central banks did not, however, raise interest rates, and many devalued their currencies in order to preserve their export markets. “Gold is the one currency that you can’t manipulate like that,” Garofalo notes. “There’s a finite amount of it. It can’t be printed, and so it provides you an ultimate store value.” Gold prices rebounded slightly early this year as interest rates remained low, and he expects that rebound to continue.
Capital expenditures over the last several years include US$4 billion on two large-scale mining constructions, the Cerro Negro in Argentina and the Eleonore in Northern Quebec. Both started operations in 2015, boosting the company’s annual production to 3.5 million ounces—a 21 per cent increase over the previous year.
Garofalo says the company is now in a “harvest phase” as it aims to take in returns on those capital investments in new mines and look for other opportunities. “Given the current lack of existing large-scale operations to acquire, we’re more focused on cultivating another generation of early-stage development projects, or investing in juniors to help them find the next big deposit.”