The earnings are equivalent to a nickel per share and represent a 48% decrease from the US$17.6 million (US10 per share) earned a year earlier. With fewer ounces sold, revenue between the two periods slipped 17% to US$40.5 million; operating earnings fell 34% to US$16 million.
Had Goldcorp sold the quarter’s entire production, earnings would have totalled US$15.9 million (US8 per share), or 21% lower than similarly adjusted earnings during the corresponding period of 2003. Adjusted cash flow would have amounted to US$24.6 million, compared with US$21.9 million a year earlier.
So far this year, Goldcorp has earned US$26.5 million (US14 per share) on revenue of US$88.8 million, compared with year-earlier earnings of US$31.8 million (US17 per share) on US$96.2 million, as nearly four times as much gold (96,946 oz.) was held back from sale during the recent first half. Operating cash flow increased by US$6.1 million, to US$8.4 million.
Adjusting for the holdback, the company’s first-half earnings amount to US$41.8 million (US22 per share), compared with US$35.3 million (US19 per share); cash flow jumps to US$37.2 million from US$8.8 million.
During the recent quarter, gold production from the flagship Red Lake mine in northwestern Ontario fell by 10% from year-earlier levels to 116,800 oz., as grades slipped by 20% to 68.2 grams per tonne. Accordingly, total costs climbed by US$16 per oz. to US$119 apiece. The quarter’s average gold recovery rate was 91.2%, up from 87.8%.
First-half production from Red Lake tips the scales at 257,028 oz. at US$114 per oz., up from the 247,199 oz. produced at US$104 per oz. in 2003. Grades and recovery rates were little-changed as costs climbed on the back of a stronger Canadian dollar and increased production from higher-cost concentrate (10,352 oz. versus 1,463 oz.).
During the first half of 2004, Goldcorp spent US$11 million sinking a new shaft at Red Lake, bringing expenditures so far to US$51 million. The company expects to spend US$30 million on the project during the remainder of the year, and another US$19 million thereafter to finish the job.
The shaft is at a depth of 381 metres, and crews expect to reach 762 metres by year-end. The shaft is designed to reach an ultimate depth of 2,179 metres, with completion slated for late 2006.
The new shaft is expected to increase the mine’s annual production by 37% to 700,000 oz. At a gold price of US$400 per oz., the plan offers an internal rate of return of 48%, with payback coming in 1.2 years.
In South Dakota, the open-pit Wharf mine chipped in 21,817 oz. gold at a total cost of US$346 per oz., up from 19,494 oz. at US$372 per oz. a year earlier. So far this year, Wharf has poured 40,916 oz. at US$342 per oz., compared with 35,898 oz. at US$367 apiece in the second quarter of 2003.
Overall, second-quarter output from the two mines totalled 138,617 oz. at a cost of US$163 per oz., compared with the 149,354 oz. at US$137 a year earlier. For the first six months of 2004, 297,944 oz. were produced at US$152 per oz., up from 283,097 oz. at US$137 per oz. in the first half of last year.
At the end of June, Goldcorp’s gold inventory totalled 117,737 oz., including 45,021 oz. deposited during the latest quarter. The company plans to withhold a third of its quarterly production during the balance of the year.
What gold it did sell went for US$393 per oz. during the second quarter, and US$403 per oz. during the first six months, an improvement, in both cases, over year-earlier prices.
“When we sold our gold in the fourth quarter of last year we made US$72 an ounce more than had we sold it when it was produced,” says Goldcorp CEO Robert McEwen. “Our view is that gold is going higher and we’re executing a similar strategy.”
In mid-December of 2003, the company said it had sold off its entire stash of 266,730 oz. gold at an average price of US$388 per oz., generating a gross of US$103.5 million for the company and a special dividend of US10 per share for shareholders.
States McEwen: “There’s been a serious correction on part of the gold market, and we have a lot of cash. This is an excellent buying opportunity, one I was waiting for in the fourth quarter when we sold a number of things in anticipation of a lower gold price.”
At quarter’s end, Goldcorp had cash and equivalents totalling US$302.9 million, gold bullion with a market value of US$46.6 million, and marketable securities worth US$31 million. The company remains debt-free.
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