Goldcorp rebounds with strong quarter

Vancouver-based major Goldcorp (G-T, GG-N) staged a comeback in the third quarter after being plagued by operational problems at its two largest mines during the first half of the year.

Goldcorp, Canada’s second-largest gold producer, trounced analysts’ expectations by generating quarterly adjusted earnings of US$440 million, or US54¢ a share, while revenues broke records at US$1.5 billion. Analysts’ consensus foresaw earnings at US46¢ per share.

The company produced 592,500 oz. gold at co-product cash costs totalling US$660 per oz., while paying US$109 million in dividends. Goldcorp’s 2012 guidance remains unchanged at between 2.35 million oz. and 2.45 million oz. gold in a cash-cost range of US$625 to US$650 per oz. on a co-product basis.

A relatively lacklustre performance during the second quarter was caused by logistical difficulties at Goldcorp’s Red Lake and Penasquito gold mines in Ontario and Mexico.

Production at Red Lake jumped 17% quarter-on-quarter to 121,200 oz. gold at cash costs totalling US$535 per oz. gold. Goldcorp experienced delays with de-stressing activity for safe access to its High Grade zone, as well as lower-than-expected grades in its Footwall zone. Completion of work at the 41 and 45 levels increased the available number of mine headings in the High Grade zone, while grade improvements in the Footwall zone were expected as the year progressed.

President and CEO Charles Jeannes said during a conference call that improved access to several stopes at Red Lake following the completion of de-stressing work is leading to stronger gold production in the second half of the year.

“An important new discovery adjacent to the High Grade zone supports the potential for greater future production flexibility at this prolific mine,” he added.

Drilling at Red Lake is ongoing from the 4199 exploration ramp, and has resulted in the discovery of the NXT zone above the 52 level west of the High Grade zone, which is being expanded at depth. Exploration to extend the zone between the 47 and 52 levels updip and along strike is ongoing.

Down in Zacatecas state, Goldcorp had experienced a drought during the second quarter at its Penasquito mine, which caused a drop in throughput capacity at the mill. Third-quarter production at Penasquito jumped 21% quarter-on-quarter to 126,000 oz. gold, while by-product metal production dropped total cash costs to negative US$608 per oz.

Record quarterly production at Penasquito was achieved despite the water shortage, as Goldcorp works to drill additional water wells. The company reports that it should have enough water to achieve a production between 370,000 and 390,000 oz. gold in 2012. The current water deficit is expected to limit plant throughput to between 98,000 and 107,000 tonnes per day for the rest of the year.

Goldcorp is reviewing costs on its development-stage gold projects, including Cerro Negro in Argentina, Éléonore in Quebec and the Cochenour expansion at Red Lake.

Considering the cost escalation seen across the industry, a jump in development capital would not be surprising in early 2013. Cerro Negro is on track to hit production in late 2013, while Éléonore and Cochenour are expected to be producing by late 2014.

Goldcorp continued to post strong margins, realizing US$1,685 per oz. gold sold, while producing at cash costs averaging US$660 per oz. gold.

“The low capital cost per ounce of new gold production for the new projects creates the opportunity for strong financial returns for our shareholders,” Jeannes said.

Goldcorp’s shares popped 7%, or $2.87, following the company’s third-quarter results. Shares have been on a rally since late July, gaining 30%, or $9.94 per share, en route to a $44.08 press-time price, or US$44.25 in New York.