Goldcorp keeps its shine through tough gold markets

VANCOUVER — Though it was not all good news for Vancouver-based major Goldcorp (G-T, GG-N), the company can rest easy on a strong fourth quarter that beat analysts’ estimates and set production records.

Goldcorp is an attractive gold producer — in what is quickly becoming a bearish market for the precious metal — due to a strong project pipeline and fiscal discipline, which has allowed it to avoid steep writedowns and cost overruns that are becoming common amongst large-scale miners.

Goldcorp hit record fourth-quarter gold production totalling 700,400 oz. at co-product cash costs of US$621 per oz., which were up from US$529 per oz. during the same period in 2011. As a result of higher production, Goldcorp saw its year-on-year quarterly net earnings jump 24% to US$504 million or US62¢ per share, though adjusted net earnings were actually down 12% at US$465 million or US57¢ per share. The company’s adjusted earnings did, however, beat analysts’ consensus estimates, which were pegged at US54¢ per share.

Goldcorp is recovering from operational problems at its two largest mines in the first half of 2012. The company suffered from de-stressing issues at its Red Lake mine in Ontario during the second quarter, which resulted in limited access to higher-grade gold zones. Meanwhile at its Penasquito mine in Mexico’s Zacatecas state, Goldcorp wrestled with drought conditions and milling issues related to water supply.

Gold production at Red Lake continues to make an impressive recovery, jumping 39% quarter-on-quarter to 168,300 oz. at total cash costs of US$403 per oz., down from US$535 per oz. in the preceding quarter.

After a de-stressing program Goldcorp achieved better access to Red Lake’s High Grade zone, thereby increasing the availability of high-grade mine headings. Annual production at Red Lake in 2012 hit 507,700 oz. at total cash costs of US$494 per oz., which is in-line with 2013 guidance numbers that fall between 475,000 and 510,000 oz.

Penasquito is a work in progress, as the company commenced mining in a lower-grade portion of its pit during the third quarter. Gold production declined quarter-on-quarter from 126,000 oz. to 112,900 oz., as the mill operates below throughput capacity at 98,800 tonnes per day. Goldcorp has Penasquito pegged at 105,000 tonnes per day for 2013, while it brings water wells into production within the Cedros basin. The company also expects a significant increase in grades at the operation throughout the year.

“Excellent quarterly performances at our two largest mines resulted in a strong finish to 2012, and position Goldcorp for a much-improved 2013,” president and CEO Chuck Jeannes says. “A full year of gold production at Pueblo Viejo in the Dominican Republic — coupled with production stability throughout our portfolio — will enable a renewed focus on productivity and efficiency at our mines in the year ahead.”

Goldcorp owns 40% of Pueblo Viejo alongside operator Barrick Gold (ABX-T, ABX-N). The mine hit commercial production in January, with Goldcorp’s share of gold production totalling 44,700 oz. in 2012. Pueblo Viejo is expected to ramp-up to design capacity by the second half of 2013, and contribute between 415,000 and 450,000 oz. to Goldcorp’s portfolio over its first five years of production at cash costs of less than US$350 per oz.

Goldcorp registered annual adjusted net earnings of US$1.6 billion, or US$2.03 per share during 2012 on the back of gold sales totalling 2.3 million oz. That compares to earnings of US$1.8 billion, or US$2.22 per share in 2011, when the company sold 2.5 million oz. gold. Goldcorp’s bottom line was hit by lower production, as well as inflation that saw year-on-year co-product cash costs jump from US$534 per oz. to US$638 per oz.

“Goldcorp’s consistent strategy is centered on realizing strong shareholder value in a challenging industry through growing low-cost production,” Jeannes says. “We have always focused on streng­then­ing our overall portfolio through the addition of high-quality gold projects, divestiture of non-core assets and exploration investments.”

Goldcorp is focusing on developing three projects that it expects will boost annual gold production to between 4 million and 4.2 million oz. by 2017. The company estimates 2013 capital expenditures at US$2.8 billion, with US$775 million going towards its Cerro Negro development in Argentina, US$650 million towards its Éléonore project in Quebec and US$100 million to the Cochenour expansion at Red Lake. The company intends to spend US$225 million on exploration in 2013.

“[Cerro Negro] remains on track for initial gold production at the end of this year amid key milestones and growing ore stockpiles,” Jeannes says. “[Éléonore] continues to benefit from a development plan focused on capital efficiency and building a solid production platform. Development at [Cochenour] is expected to accelerate, bringing a stronger production profile to the Red Lake complex.”

Goldcorp enjoyed its ninth consecutive year of reserve and resource growth, with proven-and-probable reserves jumping 4% to 67.1 million oz. The company has experienced major success during aggressive exploration at its Cerro Negro project. In 2012 Goldcorp punched 421 holes at the site over a total of 146,000 metres, and has boosted gold reserves at the project by 177% since its acquisition in 2010.

Cerro Negro hosts 18 million proven-and-probable tonnes grading 9.43 grams gold per tonne for 5.74 million contained oz. An exploration program budgeted at US$36 million for 2013 is aimed at further extending the Mariana Central, Mariana Norte and San Marcos veins to the east and drill-testing of other vein targets.

At the end of 2012 Goldcorp held US$900 million in cash, and maintained access to US$2 billion in undrawn debt facilities.

The company has 811 million shares outstanding. On Feb. 15, it closed down 2%, or 68¢, following news of its fourth-quarter results at $33.99 per share. It has a $27.6-billion market capitalization.