Goldcorp’s Jeannes: ‘We’re close to the end of the gold bear market’

VANCOUVER — Despite posting a US$192 million net loss during the third quarter, Goldcorp‘s (TSX: G; NYSE: GG) management team is telling investors to focus on what it labels “strong fundamentals.”

The company churned out record quarterly gold production and generated around US$243 million in free cash flow over the past three months. President and CEO Chuck Jeannes pointed out that successful cost control measures and promising macro-economic conditions should contribute to brighter days ahead.

Goldcorp produced 922,200 oz. during the third quarter at all-in sustaining costs of US$848 per oz. Assuming an average realized gold price of $1,114 per oz., the company reported adjusted revenues of US$1.3 billion and adjusted operating cash flow of US$374 million for the quarter.

Excluding unrealized losses from the foreign exchange translation on deferred income taxes, Goldcorp’s adjusted net loss totalled US$37 million, or 4¢ per share, during the quarter, which compares to adjusted earnings of US$65 million, or 8¢ per share, in the previous quarter.

“We remain well-positioned for a strong finish to a great year. The market performance of the gold miners has outperformed the price of gold over the last several months. Investors have begun to absorb the reality of improved operating and financial performance of the sector at a lower price environment,” Jeannes commented during a conference call.

“We also believe we’re getting close to the end of the gold bear market. U.S. Fed actions and inactions, Asian economic data and the other factors have done little to dampen the world’s appetite for owning gold. The message here is simple: Gold supply will be tightening going forward and those companies, like ours, with the best assets will be uniquely positioned to benefit from this trend,” he added.

CFO Lindsay Hall said Goldcorp’s confidence in its portfolio allowed it to reconfirm its 2015 guidance estimates at between 3.3 million and 3.6 million oz. gold at all-in sustaining costs ranging between US$850 and US$900 per oz.

Goldcorp is going through some growing pains at a trio of assets in the Americas. The most successful addition to date has been the Cerro Negro operation in Argentina, which produced 135,700 oz. in the third quarter at all-in sustaining costs of US$731 per oz. The company is coping with some union-related issues at the mine, though work only stopped for around five days in early October.

Meanwhile, Goldcorp is having more nuts-and-bolts geological issues at its Eleonore mine in Quebec and Cochenour development project in Red Lake, Ontario.

Folding and faulting at Eleonore, which hit commercial production in April, resulted in higher-than-anticipated dilution and lower planned grades and gold production. The mine produced 86,700 oz. during the third quarter at all-in sustaining costs of US$974 per oz. At Cochenour, the company is drilling to reassess the core area of the deposit, where there have been “changes in the orientation of the veins from prior interpretations.”

“We saw strong production at Cerro Negro,” Jeannes pointed out. “At Eleonore, production doubled from the prior quarter, despite some teething pains. It is a very high-quality gold mine that is only going to get better as our team works through the issues. Remember, this is a big underground mine with a two-year ramp-up to full production and we’re on track.”

In financial news, Hall was quick to tout what he labelled “one of the best balance sheets in the business.” The company fully repaid its revolving credit facility, and reported around US$3.3 billion in liquidity at the end of September. With new project spending winding down, Goldcorp expects capital expenditures to total between US$1.2 billion and US$1.4 billion this year.

BMO Capital Markets analyst Andrew Kaip noted that Goldcorp’s “headline earnings miss obscured a strong quarter fundamentally,” and that “Cerro Negro continues to outperform with processing rates above design.” BMO Research maintains an “outperform” rating on the company along with a price target of $18 per share.

“Furthermore, stronger production and lower capital expenditures translated to better-than-expected free cash flow,” Kaip wrote on October 29.

Goldcorp has traded within a 52-week window of $15.99 and $30.95, and lost around 13%, or $2.57, following its third quarter results en route to a $16.71 per share close at the time of writing. The company maintains 830 million shares outstanding for a $13.9 billion press-time market capitalization.