Goldcorp Inc. (USA) (NYSE:GG) seems to have more problems than gold companies are already battling. The company was recently forced to temporary shut down its largest gold mine: the Penasquito mine in Mexico. The shutdown of the mine was caused by a blockage by a trucking contractor who worries about losing business as Penasquito mine has become more efficient.
Goldcorp Inc. (USA) (NYSE:GG) has termed the blockade by the contractor illegal, but it says that it is open to negotiations with the protesting truckers. An official of the Zacatecas state government said that talks to resolve the blockade are underway.
Impact of production not expected
Though Goldcorp has said that it doesn’t expect the temporary shutdown of the Penasquito mine to affect its cost guidance and production target for 2016, investor fears remain. Goldcorp stock has been sliding despite the assurance that all will be well soon.
The company was looking for gold production of between 2.8 and 3.1 million ounces in 2016. However, gold production at Penasquito mine has appeared to be sliding this year. Penasquito mine only produced 36,000 ounces of gold in 2Q2016, down 87.9% YoY. A 10-day shutdown for maintenance and lower grade ore resulted in the low production at the mine. For the year, Goldcorp was looking to mine 520,000 and 580,000 ounces of gold at the Penasquito mine.
Fear of prolonged shutdown, additional legal costs and possible production target miss seems to be the reason investors are heading for the exit in Goldcorp stock.
ECB easing fears
On top of the Penasquito mine woes, sliding gold prices because of rumors the European Central Bank might slow down its easing activities is also rattling Goldcorp stock.
Though minutes of a meeting of the ECB governing council show that the monetary regulator is keen to continue propping up the Eurozone through continued bond buying, a rumor surfaced to the contrary. The rumor created fear among gold traders that the era of easy money to could soon be over, thus triggering a slide in gold prices and gold stocks.
Because gold pays its holders nothing, demand for the yellow metals declines when interest rates rise because investors turn their attention to yield-bearing assets.
