Goldcorp cruises on Red Lake (May 02, 2002)

Despite lower revenue, GoldCorp (G-T) was able to post higher first-quarter earnings thanks to the performance of its Red Lake mine in northwestern Ontario.

Revenue during the three months ended March 31 came to US$38 million, US$10.3 million off the year-ago pace. However, earnings tallied to US$16.2 million (or 20 per share), compared with earnings of US$14.7 million (18 per share) in the first quarter of 2001. Cash flow from operations was US$20.3 million, down from $28.4 million.

During the latest quarter, gold production amounted to 145,693 oz. at a cash cost of US$96 per oz., down from last year’s 172,784 oz. at US$77 apiece.

The bulk of the ounces came from Red Lake, which poured 124,883 oz. for just US$65 each, lower than the previous year’s 146,512 oz. at US$54 per oz., but 10% better than originally forecast. The drop in production reflects a decrease in the grade of ore processed (2.06 oz. per ton versus the year-ago 2.78 oz. per ton). By comparison, Red Lake’s average reserve grade is 2.05 oz. per ton. GoldCorp also says that production at Red Lake was lowered to allow for development work at the mine.

Production at the Wharf heap-leach mine in South Dakota slipped to 20,810 oz. at US$240 per oz. from 26,272 oz. at US$204 apiece as the new Trojan pit area is still under development. GoldCorp expects an improvement once development is complete and pegs 2002 production at 95,000 oz.

GoldCorp sold a total of 124,000 oz. of gold for an average of US$291 per oz. during the quarter. That’s 49,487 less than last year. The difference is owing to GoldCorp’s plan to build up its gold bullion inventory. Since the end of 2001, the company has added 21,667 oz. to now hold 56,728 oz. Based on the London PM Fix on the last business day of March, the market value of the gold was US$17.1 million.

GoldCorp figures that its quarterly earnings would have come in at US$18.8 million (23 per share) had it sold all the bullion produced during the quarter. Operating cash flow would hit US$26.6 million.

At the end of March, the company had 82.8 million shares outstanding and US$88.7 million in cash and short-term investments. The company remains debt- and hedge-free.

Looking ahead, Goldcorp expects to crank out 570,000 oz. in 2002 at an average cash cost of US$100 per oz.

The company’s previously announced two-for-one stock split has been approved by shareholders, but is being held up by a strike by Ontario provincial government employees.The move will double its number of outstanding shares to just over 165 million.

In late-April, GoldCorp boosted it cash position to US$225 million via a bought deal comprising 8 million units priced at US$18 apiece. Each unit includes one share and half a warrant, with a full warrant entitling the holder to buy an additional share within five years of the deal’s closing, at US$25.