Goldcorp lifts bottom line (May 05, 2003)

The turnaround in gold prices, combined with higher sales volumes, enabled Goldcorp (G-T) to overcome weaker production and record higher profits in the first quarter.

Net earnings topped US$14.4 million (or US8 per share) in the three months ended March 31 as revenue climbed to US$47.5 million, compared with earnings of US$12.9 million (US8 per share) on US$39 million in the first quarter of 2001.

Cash flow was negative US$14.3 million, compared with an inflow of US$20.3 million a year earlier. Higher taxes are to blame, though cash flow is expected to be positive over the remainder of the year.

Goldcorp produced 133,743 oz. in the recent quarter, or 11,950 oz. less than a year earlier; however, 5,866 more ounces were sold, and realized prices were 18% higher. (Goldcorp realized an average US$343 per oz., which is US$9 shy of the average spot price, reflecting its huge variation over the quarter.)

The company’s flagship Red Lake mine, in Ontario, cranked out 117,339 oz., or 7,544 oz. less than in the first three months of 2002. Head grades were up, but this was offset by a drop in recovery rates, resulting in the production of fewer ounces.

Cash costs averaged US$74 per oz., versus US$65 per oz. a year earlier, and total costs averaged US$104 per oz., versus US$92 per oz. The increase, in both cases, is due to three factors: the fall in the greenback relative to the loonie; higher development costs (some stopes are being changed for undercut mining methods); and an increase in electricity rates.

In March, miners moved into a higher-grade section of the deposit, causing recovery rates to improve. For all of 2003, head grades are expected to average 2.22 oz. per ton, just shy of the reserve grade.

Red Lake remains on budget to produce 510,000 oz., including 31,000 oz. from concentrate, in 2003. Cash costs are expected to average US$67 per oz. and total costs, US$100 per oz., both of which compare favourably with 2002 figures.

Soon, Goldcorp will begin sinking a second shaft in the Far East zone. It will eventually bottom out at 7,150 ft. below surface and be capable of hoisting 4,000 tonns of material per day, leading to a 45% increase in annual production, to 740,000 oz.

Capital costs are pegged at US$85 million and will be repaid in just over a year. About US$23 million will be spent in the current year.

At a gold price of US$325 per oz., the project generates a 47% internal rate of return. The forecast accounts for the funds needed to expand the mill’s capacity to 1,000 tons to accomodate the extra feed (800 tons from the High Grade zone and 200 tonnes from the Sulphide zone).

The Wharf mine in South Dakota failed to meet budget, producing 16,404 oz. a cash cost of US$278 per oz. The lacklustre performance is attributable to lower grades and recoveries from the Trojan deposit, where mining is now focused (and where it will end, in 2006).

By year-end, Goldcorp expects Wharf to have produced 89,000 oz. at a cash cost of US$230 per oz. The forecast for total costs remains set at US$306 per oz., which compares favourably with the average achieved in 2002, when 81,989 oz. were produced.

Goldcorp also owns an industrial minerals operation in Saskatchewan, which contributed US$600,000 to the company’s operating profit in the first quarter. That’s US$100,000 more than a year earlier, reflecting higher sales volumes and realized prices.

At March 31, Goldcorp had just over US$295 million in working capital, with most of its current assets held in the form of cash and bullion. The company now has 223,576 oz. of the yellow metal in its vault, or 14% more than it had at the year’s start.

Goldcorp remains debt-free and pays an annual dividend of US15 per share. The dividend, which is paid bi-monthly, was increased to its current amount earlier this year.