ABX Barrick Gold Corp. (BC) (delisted)

Goldcorp Inc.’s (GG) adjusted earnings (excluding one-time items other than stock based compensation expenses) came in at 54 cents a share in the third quarter of 2012, comfortably exceeding the Zacks Consensus Estimate of 45 cents. However, the results were below 56 cents a share earned a year ago.  

Revenues increased 17.6% year over year to $1.54 billion in the quarter, surpassing the Zacks Consensus Estimate of $1.37 billion. Operating improvements across the Red Lake and Penasquito mines contributed to the growth in the quarter.

Gold sales jumped 8.1% year over year to 617,800 ounces and production inched up 0.07% to 592,500 ounces. Total cash costs were $220 per ounce of gold on a by-product basis and $660 per ounce on a co-product basis.

Mining Highlights

At the Red Lake Mine in Canada, gold production went down almost 4.6% to 121,000 ounces and total cash cost was $535 per ounce, a year-over-year jump of almost 32%.

At Porcupine in Ontario, gold production decreased 30.4% to 53,100 ounces with total cash cost coming in at $929 per ounce. Mine sequencing which led to lower grades resulted in the decline in production.

Gold production at Musselwhite climbed 9.7% to 65,500 ounces at a total cash cost of $699 per ounce, driven by a 13% increase in mill throughput.

At the Penasquito mine, gold production soared 125.8% to 126,000 ounces, driven by strong grades in the deeper portions of the current pit phase. Strong by-product metals production led to total cash cost of negative $608 per ounce of gold on a by-product basis. Silver production at the mine was about 7 million compared with 4.2 million in the year ago quarter.

At the Los Filos mine, gold production increased 8.8% to 79,700 ounces at total cash cost of $595 per ounce.

At Marlin, gold production almost halved from the year-ago quarter to 47,900 ounces at a cash cost of $40 per ounce on a by-product basis. Silver production declined 33.5% to 1.5 million ounces. The decrease in production was due to the completion of open pit mining operations in the Marlin pit at the end of 2011.

At Alumbrera, gold and copper production totaled 40,500 ounces and 31.2 million pounds, respectively, a year-over-year increase of 6% and 9.1%, respectively. Total cash cost was negative $628 per ounce on a by-product basis.

During the third quarter, first gold was poured at Pueblo Viejo, where Goldcorp holds a 40% interest with the rest owned by Barrick Gold Corporation (ABX). Commercial production is expected in December 2012.  At the end of the third quarter of 2012, more than 2 million contained gold ounces were stockpiled.

Financial Position

As of September 30, 2012, cash and cash equivalents were $894 million versus $1,502 million as of December 31 2011. The company’s operating cash flow before working capital changes amounted to $687 million in the quarter.

Project Update

Goldcorp is conducting several studies related to a number of its growth projects. A study is under review which will include updated project costs and timing of first gold at  Cochenour. Infrastructure, construction, mine development and exploration activities continued to advance the Cerro Negro project in Argentina.

Several major engineering projects were completed at the Eleonore project in Quebec. The El Morro project in Chile has been suspended since April 30, 2012, pending the correction by the Chilean environmental permitting authority.

Outlook and Recommendation

Goldcorp reiterated its guidance for 2012 and expects to produce 2.35 million to 2.45 million ounces of gold this year. Total cash costs are expected in the range of $310 to $340 per ounce of gold on a by-product basis. On a co-product basis, it maintained its cash cost guidance of $625 to $650 per ounce.

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

 
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