Goldcorp posts US$1.9B net loss in Q2

Goldcorp (TSX: G; NYSE: GG), the largest gold miner by market value, showed it’s not immune to the falling gold price.

The miner posted a net loss of US$1.9 billion in the second quarter compared to a US$268-million profit a year ago. The loss was triggered by weaker metal prices, which led the Vancouver-based firm to reassess the book value of its assets and take a non-cash impairment charge of US$1.96 billion.

Taking the biggest hit was the company’s prized Penasquito gold mine in Mexico, with an impairment charge of US$1.8 billion, primarily caused by the decline in market value for the mine’s exploration potential — or in-situ value — said Lindsay Hall, Goldcorp’s chief financial officer, on a conference call. Goldcorp also wrote down the value of its early stage Cerro Blanco project in Guatemala by US$131 million, noting the project has been placed on care and maintenance.

But excluding writedowns and other one-time items, adjusted earnings for the quarter were US$117 million, or US14¢ per share, compared to US$332 million, or US41¢ per share, the year earlier.

Year-over-year revenues fell 18% to US$889 million and adjusted operating cash flow tumbled 38% to US$338 million, largely due to the declining metal prices and the poor timing of sales.

“Unfortunately, our second-quarter production was weighted towards the end of the quarter and nearly half of the sales came in June, which was, of course, when we saw the large drop in metal prices,” Charles Jeannes, Goldcorp’s president and CEO, said on the call.

As a result the miner reported realized prices of US$1,358 per oz. gold and US$17.01 per oz. silver — well below the quarter’s average spot prices of US$1,414 per oz. gold and US$23.11 per oz. silver.  That,  along with 14,000 oz. gold that were left in inventory at the Red Lake mine in Ontario, “impacted our revenue and led to a lower-than-expected earnings result,” Jeannes explained.

Gold production was in line with expectations at 646,000 oz. gold, of which it sold 624,300 oz. — 15% more than a year ago. It also generated 7.18 million oz. silver, 35,400 lb. lead and 70,100 lb. zinc during the quarter.

Also affecting the bottom line were higher operating costs. Total cash costs rose 75% to US$646 per oz. gold on a by-product basis and 15% to US$713 per oz. on a co-product basis, compared to US$370 per oz. and US$619 per oz. in the same period last year.

All-in sustaining costs were US$1,279 per oz. for the quarter.

The company is working on lowering mining costs across its ­operations while increasing productivity, with a focus on Penasquito.

The company announced that it has located a new water source, the Northern Well Field, within Penasquito’s permitted Cedros basin. Once built, the water source should help the sulphate plant reach its design capacity. “Mill throughout has been limited by lower-than-expected water production in the current well field,” Goldcorp says in a release. The cost to develop the well field is pegged at US$150 million, with construction anticipated by year-end.

Meanwhile, Goldcorp plans to push back 2013 and 2014 capital costs at Cerro Negro in Argentina, Éléonore in Quebec and Cochenour in Ontario — which are under construction — without impacting the project timelines. Moreover, it will trim costs at its development projects and sustaining capital at its operating mines. These initiatives could lower capital costs in 2013 by US$200 million to US$2.6 billion.

Goldcorp expects to lower this year’s exploration budget to US$200 million from US$225 million, and general administrative expenses to US$164 million from US$180 million.

“We’re taking these actions to safeguard our financial strength and sustain our success in any conceivable market environment,” Jeannes noted, adding operations and growth plans remain on track.

The company ended the quarter with US$899 million in cash and equivalents. It has confirmed its full-year guidance of 2.6 million to 2.8 million oz. gold, at total all-in sustaining costs of US$1,000 to $1,100 per oz.