(GG) Goldcorp Quarterly Earnings Exceed Consensus

Goldcorp Inc.’s (GG) adjusted net earnings were $459 million, or 57 cents per share compared with $244 million or 33 cents per share in the year-ago quarter. Results exceeded the Zacks Consensus Estimate of 56 cents per share. Reported net earnings were $336 million in the third quarter of 2011 compared with $721 million in the third quarter of 2010.

Revenue

In the third quarter of 2011, revenues increased 48% year over year to $1.3 billion, on gold sales of 571,500 ounces.

The average realized gold price for the quarter rose 39% to $1,719 an ounce. Cash costs totaled $258 per ounce on a by-product basis and $551 per ounce on a co-product basis. Output in the quarter rose slightly as production gains at its Penasquito mine in Mexico and its Marlin mine in Guatemala more than offset the impact of production declines at some of its other operations.

Mining Update

Mexico: At the Penasquito mine, gold and silver production were 55,800 and 4,203,200 ounces, respectively, for the third quarter of 2011. Lead and zinc production in the reported quarter totaled 33.6 million pounds and 66.4 million pounds, respectively. Cash costs for the third quarter of 2011 was negative $796 per ounce of gold.

Progress at Penasquito on the supplemental ore feed system and tailings facility improvements will remain on track for ramp-up to full 130,000 tonnes per day throughput, which will resume by the end of this year.

At Los Filos, gold production was 73,200 ounces at total cash costs of $490 per ounce led by gold grades and recoveries. The expansion of carbon plant capacity completed last quarter provided an increase in solution processing capacity of 14%, which led to the increase in metal production.

The 2011 exploration program continues to progress with the objective of proving the extension of the Los Filos deposit toward the 4P area and El Bermejal to the south and west. Results to date are positive in proving both extensions.

Canada: At the Red Lake Mine, gold production was 127,000 ounces at total cash costs of $405per ounce. Production was affected by lower grades, realized from the High Grade Zone, resulting from intersection of a lower grade section of the ore body. Additionally, a significant amount of exploration and development is continuing to bring the Upper Red Lake Complex, the Far East Zone and the Footwall Zones into sustained production.

At Porcupine in Ontario, gold production during the third quarter totaled 76,300 ounces at a total cash cost of $614 per ounce.  The Hoyle Pond Deep project advanced during the third quarter as preparation progressed toward shaft sinking in the first quarter of 2012.

Gold production at Musselwhite during the third quarter totaled 59,700 ounces at a total cash cost of $778 per ounce. Exploration continued to focus on the surface and underground extension of the Lynx Zone and PQ Deeps resources.

Guatemala: At Marlin in Guatemala, gold production increased 50% to 95,000 ounces at a total cash cost of negative $347 per ounce while silver production increased 62% to 2,291,100 ounces. The growth was driven by higher gold and silver grades and an 11% increase in tonnes milled. Mining operations at Marlin will will be transformed exclusively into underground mining as mining in the pit concludes during 2012.

Financial Position

At the end of September 30, 2011, cash and cash equivalents were $1,476 million versus $556 million at the end of December 31, 2010.

Free cash flow generated during the quarter amounted to $224 million.

Project Pipeline

PuebloViejo: Construction of Pueblo Viejo in the Dominican Republic is now more than 75% complete. A major rainfall that occurred in May 2011 requires remediation of damage to the partially constructed starter tailings dam facility and as a result, the first production is now anticipated in mid-2012, subject to the receipt of new tailings permit approvals.

Goldcorp’s share of annual gold production in the first full five years of operation is expected to average 415,000–450,000 ounces at total cash costs between $275 and $300 per ounce.

As part of a longer-term optimized power solution for Pueblo Viejo, a plan is being advanced to build a dual fueled power plant at an estimated incremental capital cost of about $0.3 billion (100% basis) or $0.12 billion (Goldcorp’s 40% share). The new plant is expected to provide lower cost and long-term power to the project.

Cerro Negro: In the quarter, Eureka continues to decline, reaching a length of 1,432 meters, out of a total 3,900 meters. An amended Environmental Impact Assessment was submitted to Provincial authorities, which once approved, will permit plant throughput to be increased from 1,850 to 4,000 tonnes per day, and mining to occur from three separate underground mines concurrently, rather than just the Eureka vein. Earth works in and around the plant area and access road upgrades also continued during the quarter.

A regional exploration team is being developed that will allow exploration outside of the core Cerro Negro vein areas later in 2011 and throughout 2012.

Eleonore project: At the project in Quebec, 36,000 meters of in-fill surface diamond drilling was completed by the end of the quarter.  Detailed engineering of the production shaft and related infrastructure have progressed during the quarter. Long-lead time delivery equipment is being ordered.  The Environmental and Social Impact Assessment permit for full construction is expected to be received in the fourth quarter of 2011.

Cochenour: The new 5.5 meter diameter Cochenour shaft commenced to the 150 level.  Construction of surface facilities also progressed, including completion of head frame steel erection and collar house, pumping and electrical distribution equipment. The Cochenour-Red Lake Haulage Drift advanced to 35% at quarter-end, with the two drills now testing the exploration potential of this under explored area in the heart of the Red Lake district.

Camino Rojo: Exploration and development work continued at Camino Rojo, the advanced-stage satellite exploration project near Penasquito. Drilling continued with a total of 18,767 meters drilled, including 44 resource expansion and in-fill core holes, plus 10 condemnation holes in anticipation of site facilities At Noche Buena, another advanced-stage district project near Penasquito, new exploration drilling has confirmed structurally controlled higher grade mineralization trends within the resource envelope.  Follow-up drilling has been planned to in-fill the oxide portion of these trends.

El Morro:At the El Morro project, technical work on the update to the 2008 feasibility study was completed during the quarter and is now under management review.  However, the results indicated that the capital cost of gold production is anticipated to be $3.9 billion when it will start producing gold after 5-6 yrs of getting approval for the project

Outlook

For 2011, Goldcorp reaffirmed its revised production guidance between 2.5 million and 2.55 million ounces of gold.

Total cash costs for the year are expected to range between $180 and $220 per ounce on a by-product basis; and between $500 and $550 per ounce on a co-product basis.

Goldcorp stated that its strong balance sheet and its increasing cash flows leave it well-positioned to fund projects in its pipeline.

The company also indicated it may boost its dividend after it completes its mine planning and budgeting process, which is currently underway.

The company competes with Barrick Gold Corporation (ABX) and Newmont Mining Corp. (NEM).

We maintain our Neutral recommendation on Goldcorp. Currently, it holds a Zacks #2 Rank (Buy) on the stock.

BARRICK GOLD CP (ABX): Free Stock Analysis Report

GOLDCORP INC (GG): Free Stock Analysis Report

NEWMONT MINING (NEM): Free Stock Analysis Report

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