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Morningstar | Years of Operational Struggles Led to Goldcorp's Acquisition by Newmont at a Low Price

Goldcorp's production base lies mostly in stable jurisdictions throughout North and South America. The company has divested noncore assets and acquired development projects as it seeks to achieve 20% production growth, 20% all-in sustaining cost reduction, and 20% higher reserves by 2021.Goldcorp's largest mines include Cerro Negro in Argentina, Eleonore in Canada, and Penasquito in Mexico. Cerro Negro and Eleonore opened just a few years ago and have already become significant contributors to Goldcorp's production. Penasquito produces significant gold ounces along with silver, lead, and zinc. These byproducts help keep the mine’s production costs very low, though the mine will face low production in the near term because of mine sequencing.We expect Goldcorp’s production to rise to roughly 3 million ounces by 2021, as new projects offset declining production at the company's older mines. Over time, we think Goldcorp's production, reserves, and cost targets are achievable as it rationalizes costs, opens new mines, and focuses on exploration to boost gold reserves.Our long-term nominal gold price forecast is $1,300 per ounce in 2020. Investment demand will weaken further as the Federal Reserve raises interest rates, weighing on near-term gold prices. However, Chinese and Indian jewelry demand should eventually fill the gap left by investment demand. Strong preferences for gold in these countries drive high income elasticity, and rising incomes should result in robust jewelry demand growth over the next few years. Strong demand will lead to a production shortfall, requiring a higher incentive price to encourage additional mine production. However, cost deflation caps the potential upside from an otherwise strong demand story. Depreciation in producer currencies, lower oil prices, and general mine cost deflation stemming from the end of the Chinese-driven commodity boom have helped drive cost reductions, lowering the marginal cost of production.