The performance of gold miners has not been inspiring so far
this earnings season.
) could not break out of the mould, as its second quarter-2012
results failed to impress. The company's adjusted earnings
(excluding one-time losses and gains other than stock-based
compensation) dropped to 34 cents a share in the quarter from 45
cents last year, missing the Zacks Consensus Estimate of 41
Goldcorp indicated a weak quarter when it released its second
quarter production guidance and reduced its full year forecast
earlier this month. Weak production from the Red Lake mine in the
first half of the year and lower expectations from the Peñasquito
mine for the second half forced the company to slash its
These bottlenecks led to a 45% year-over-year drop in reported
profit to $268 million (or 26 cents per share) in the second
quarter from $489 million, or 52 cents per share, last year.
Also, revenues plunged almost 16% year over year to $1,113
million, and comprehensively missed the Zacks Consensus Estimate of
$1,419 million. Gold sales went down to 532,000 ounces in the
quarter from 606,400 ounces in the prior-year period.
Average realized price of gold increased roughly 5.3% year over
year to $1,596 per ounce. However, declining sales coupled with
escalating costs hindered the company's performance in the quarter.
To put things in perspective, total cash costs of gold on a
by-product basis jumped almost 12% from last year, wiping out the
effects of an increase in gold price.
At the Red Lake Mine in Canada, gold production went down almost
33% to 104,000 ounces and total cash cost was $568 per ounce, a
year-over-year jump of almost 62%. Problems faced in the first
quarter by Goldcorp at Red Lake continued in the second
Sluggish de-stressing activity due to unfavorable ground
conditions in the High Grade Zones delayed access to the planned
high grade stopes. In addition, lower grades in the Footwall Zones
also dragged down gold production. The company will continue to
evaluate Red Lake's long-term production profile and expects the
mine to produce between 460,000 and 510,000 ounces this year till
further studies are carried out.
At Peñasquito in Mexico, gold and silver production increased
78% and 43% to 103,800 ounces and 6,570,700 ounces, respectively,
from last year. Insufficient water supply in June affected mill
throughput at Peñasquito in the second quarter. The area is
experiencing protracted drought conditions, leading to below
average water recharge in the well field and lower water production
from the pit de-watering program.
Goldcorp is trying to resolve the situation by drilling more
wells and ramping up the quantity of water reclaimed from the
tailings facility. However, it expects that the problem will
persist in the remainder of
At Los Filos in Mexico, gold production went down 2% to 85,200
ounces at total cash costs of $531 per ounce, an increase of 22%
over last year. The construction of the heap leach pad facility was
completed in the quarter as per schedule.
At Porcupine in Ontario, gold production increased 20% from last
year to 74,900 ounces at total cash cost of $674 per ounce. The
positive performance was a result of higher grades and
At Marlin in Guatemala, gold and silver production in the
quarter fell 28% and 15% to 56,700 ounces and 1,613,400 ounces,
respectively, from the year-ago period. The drop in production was
in accordance with the mine plan, after the conclusion of open pit
mining operations in the Marlin pit at the end of 2011.
As of June 30, 2012, cash and cash equivalents were $1.2 billion
versus $1.4 billion as of June 30, 2011. The company's cash from
operations increased to $554 million in the quarter from $330
million last year.
Goldcorp has almost completed the construction of the Pueblo
Viejo project, where it holds 40% interest with the rest owned by
Barrick Gold Corporation
). Gold production at Pueblo Viejo is expected to begin in
Construction and exploration activities continued at the
Éléonore project in Quebec and the Cochenour project in Ontario.
Diamond drilling is in progress at Cochenour with three drills on
the surface to define the top portion of the Bruce Channel deposit
and additional resources.
However, work remains suspended at the El Morro project in Chile
since April 30, 2012, as Goldcorp awaits correction by the Chilean
Environmental Permitting Authority regarding certain deficiencies
identified by a ruling of the Court of Appeals of Antofagasta.
Based on fruitful exploration efforts by Goldcorp at Red Lake,
Cerro Negro and Camino Rojo, the company has increased exploration
expenditures to $226 million from $200 million.
Outlook and Recommendation
Goldcorp expects to produce to 2.35 to 2.45 million ounces of
gold in 2012, down from the earlier expectation of 2.6 million
ounces. Total cash costs are expected in the range of $310 to $340
per ounce of gold on a by-product basis, up from the previous
estimate of $250 and $275.
On a co-product basis, it expects cash cost of $625 to $650 per
ounce of gold versus the previous estimate of $550 to $600 per
ounce. Copper production guidance has remained unchanged at 110
We currently have a long-term Neutral recommendation on
Goldcorp. The company, which competes with Barrick Gold Corporation
Newmont Mining Corp.
), holds a Zacks #5 Rank, indicating a short-term Strong Sell
BARRICK GOLD CP (ABX): Free Stock Analysis
GOLDCORP INC (GG): Free Stock Analysis Report
NEWMONT MINING (NEM): Free Stock Analysis
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