GG Goldcorp Inc.

Goldcorp Inc. (GG) reported disappointing results in the first quarter of 2012, sending its shares down by 5.70%. It posted adjusted net earnings of $404 million or 50 cents per share in the quarter, slightly higher than $392 million or 49 cents posted in the year-ago quarter.

However, the results failed to meet the Zacks Consensus Estimate of 54 cents per share, resulting in a downward surprise of 7.41%.

Net income (as reported) slid 26% to $479 million (or 59 cents per share) in the quarter from $651 million, or 82 cents per share, in the year-ago period.

Revenue

In the first quarter, revenues increased 11% to roughly $1.35 billion compared with $1.22 billion in the prior-year quarter. However, revenues missed the Zacks Consensus Estimate of $1.46 billion by roughly 8%. Gold sales in the quarter amounted to 545,700 ounces compared with 627,300 ounces in the year-ago quarter.

The average realized gold price for the quarter rose 22.5% to $1,707 per ounce. Cash costs totaled $251 per ounce of gold on a by-product basis and $648 per ounce of gold on a co-product basis. This compares with cash costs of $188 per ounce of gold on a by-product basis and $504 per ounce of gold on a co-product basis in the comparable year-ago quarter.

Mining Highlights

At the Red Lake Mine in Canada, gold production went down 38.6% to 114,200 ounces and total cash cost was $523 per ounce. The company faced unfavorable ground conditions in the High Grade Zone, thereby delaying its access to the planned high grade stopes. In addition, inconsistent mineralization in the Footwall Zones and lower-than expected grades in the Campbell zone also dragged down gold production.

At Marlin in Guatemala, gold and silver production in the quarter fell 32% and 6% to 53,200 ounces and 1,663,100 ounces, respectively, from the year-ago period. The drop in production was in accordance with the mine plan after the conclusion of open pit mining operations in the Marlin pit at the end of 2011.

The Musselwhite mine reported gold production of 53,200 ounces in the quarter, down 21% from the year-ago period, at a total cash cost of $844 per ounce. However, the company is presently focused on exploring and defining the Lynx Zone from surface and underground.

Goldcorp also says that early stage exploration of the West Limb target has yielded positive results and a number of mineralized shears have been intersected during the drilling.

At Los Filos in Mexico, gold production went down 12.6% to 82,700 ounces at total cash costs of $521 per ounce. The construction of the next phases of the heap leach pad facility is moving ahead well and is scheduled for completion towards the end of the second quarter of 2012. 

Financial Position

As of March 31, 2012, cash and cash equivalents were $1.4 billion versus $1.3 billion as of March 31, 2011. The company’s cash from operations declined to $322 million in the quarter from $586 million last year. 

Projects in Pipeline

The Pueblo Viejo project in the Dominican Republic is approximately 93% complete and is expected to become productive by the middle of this year. The Cerro Negro project in Argentina is currently progressing and the first production blocks are expected to be mined this year.

Moreover, the company is witnessing strong results from its exploration initiatives and drilled 118 holes in the quarter. Goldcorp says that construction is going as per schedule and initial gold production is expected in the second half of 2013.

Exploration and development work at Camino Rojo also continued. Goldcorp concluded the resource block and geologic models early in the second quarter of 2012, and expects to complete the feasibility study by middle of this year.

Construction and exploration activities continued at the Éléonore project in Quebec and the Cochenour project in Ontario. Diamond drilling is in progress at Cochenour with three drills on the surface to define the top portion of the Bruce Channel deposit and additional resources. Construction planning and detailed engineering for facilities in the areas approved by the Environmental Impact Assessment (“EIA”) continued to advance at the El Morro project in Chile. 

Outlook and Recommendation

For 2012, Goldcorp expects to produce to 2.6 million ounces of gold. Total cash costs are expected between $250 and $275 per ounce of gold on a by-product basis and between $550 and $600 per ounce of gold on a co-product basis. However, the potential impact of production delays in the first quarter at Red Lake to Goldcorp's overall 2012 production and cash costs is currently being evaluated by the company.

We currently have a long-term Neutral recommendation on Goldcorp. The company, which competes with Barrick Gold Corporation (ABX) and Newmont Mining Corp. (NEM), retains a Zacks #3 Rank, indicating a short-term Hold rating.

 
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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