Goldcorp cruises on Red Lake (May 08, 2002)

Despite lower revenue, GoldCorp (G-T) managed to post record first-quarter earnings, thanks to the performance of its Red Lake mine in northwestern Ontario.

Revenue during the three months ended March 31 came to US$38 million, or US$10.3 million less than in the comparable quarter of 2001. However, earnings between the two periods rose to US$16.2 million (or 20 per share) from US$14.7 million (18 per share). Cash flow from operations decreased to US$20.3 million from $28.4 million.

During the latest quarter, gold production totalled 145,693 oz. at a cash cost of US$96 per oz., down from 172,784 oz. at US$77 a year earlier.

The bulk of the gold came from the Red Lake mine, which poured 124,883 oz. at a cash cost of US$65 each, lower than the previous year’s 146,512 oz. at US$54 per oz. but 10% better than forecast. The drop in production reflects a decrease in the grade of ore processed (2.06 oz. per ton versus the year-ago estimate of 2.78 oz.). By comparison, Red Lake’s average reserve grade is 2.05 oz. per ton. Production at Red Lake was lowered to allow for development work at the mine.

Production at the Wharf heap-leach mine in South Dakota slipped to 20,810 oz. at a cost of US$240 per oz. from 26,272 oz. at US$204, the reason being that the Trojan pit area is still under development. GoldCorp expects output to improve once development is complete and pegs 2002 production at 95,000 oz.

GoldCorp sold a total of 124,000 oz. gold for an average of US$291 per oz. during the quarter. That’s 49,487 less than in the year-earlier period. The difference reflects GoldCorp’s plan to build up its gold bullion inventory. Since the end of 2001, the company has added 21,667 oz. so that it now holds 56,728 oz. Based on the London afternoon fix on March 28, the market value of the gold was US$17.1 million.

GoldCorp’s quarterly earnings would have come in at US$18.8 million (23 per share) had it sold all the bullion produced during the quarter. Operating cash flow would have been US$26.6 million.

Goldcorp is in the midst of a $12-million exploration program, the largest ever at the Red Lake mine. Another $4 million has been budgeted for exploration in the Red Lake area outside the mine.

Exploration efforts are testing for deep extensions of the High Grade zone (HGZ) and sulphide mineralization. Crews are also testing for high-grade and sulphide mineralization in the Western Complex area, about 700 metres west of the HGZ, and in the Far East zone.

At the end of March, the company had 82.8 million shares outstanding and US$88.7 million in cash and short-term investments. It remains debt- and hedge-free.

Looking ahead, Goldcorp expects to crank out 570,000 oz. in 2002 at an average cash cost of US$100 per oz.

The company’s previously announced 2-for-1 stock split has been approved by shareholders but is being held up after a strike by Ontario provincial government employees.

In late April, GoldCorp boosted it cash position to US$225 million via a bought deal comprising 8 million units priced at US$18 apiece. Each unit includes one share and half a warrant, with a full warrant entitling the holder to buy an additional share within five years of the deal’s closing, at US$25.

Goldcorp Chairman Robert McEwen says the company will use the money to “be prepared for opportunities, and we’re looking to accelerate the development of Red Lake.”

The company paid its first quarterly dividend of 5 per share and intends to make three similar payments over the balance of 2002.