VANCOUVER — Vancouver-based major Goldcorp (G-T, GG-N) staged a big comeback in the third quarter after being plagued by a series of operational problems at its two largest mines during the first half of 2012.
Goldcorp, Canada's second largest gold producer, soundly trounced analysts expectations by generating quarterly adjusted earnings of US$440 million, or 54¢ a share, while revenues broke records at US$1.5 billion — consensus on The Street had earnings at roughly 46¢ per share.
The company produced 592,500 oz. of gold at co-product cash costs totalling US$660 per oz., while paying US$109 million in dividends. Goldcorp's 2012 guidance remains unchanged, falling between 2.35 million oz. and 2.45 million oz. gold in a cost range of US$625 to US$650 per oz.
A lackluster performance over the second quarter was primarily driven by logistical difficulties at Goldcorp's Red Lake and Penasquito gold mines.
Production at Ontario-based Red Lake jumped 17% quarter-on-quarter to 121,200 oz. of gold at cash costs totalling US$535 per oz. Goldcorp experienced delays with de-stressing activity designed to allow safe access to its High Grade zone, as well as lower-than-expected grades in its Footwall zone. Completion of work at the 45 and 41 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.
“At Red Lake, access to several stopes following the completion of de-stressing work is leading to stronger gold production in the second half of the year,” commented president and CEO Charles Jeannes. “[In addition], an important new discovery adjacent to the High Grade Zone supports the potential for greater future production flexibility at this prolific mine.”
Drilling at Red Lake is ongoing from Goldcorp's 4199 exploration ramp, resulting in the discovery of a new zone called “NXT” lying above the 52 level west of the High Grade zone, which continues to be expanded at depth. Exploration aiming at extending the zone between the 47 and 52 levels up-dip and along strike is ongoing.
Meanwhile in Mexico's Zacatecas state, Goldcorp experienced drought conditions during the second quarter at its Penasquito mine that caused a drop in throughput capacity at the mill. Third quarter production at Penasquito jumped 21% quarter-on-quarter to 126,000 oz. of gold, while by-product metals production dropped total cash costs to negative U$608 per oz.
Record quarterly production at Penasquito was achieved despite a continued water shortage, as Goldcorp works to drill additional water wells. The company reports that it should have sufficient water to achieve its guidance for the mine of between 370,000 and 390,000 oz. gold in 2012. The current water deficit is expected to limit plant throughput to between roughly 98,000 and 107,000 tonnes per day over the remainder of 2012.
Goldcorp is in the midst of a cost review on its developmental pipeline, including the Cerro Negro project in Argentina, Éléonore project in Quebec, and Cochenour expansion at Red Lake. Considering wide-spread cost escalation 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. of gold sold, while producing at cash costs averaging US$660 per oz.
“The low capital cost per ounce of new gold production for the new projects creates the opportunity for very strong financial returns for our shareholders," Jeannes commented.
Goldcorp's shared popped 7% or $2.87 following the announcement of the company's third quarter results. Goldcorp has been on a strong rally since late July, gaining 30% or $9.94 per share en route to a $43.66 press-time close.
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