Goldcorp’s earnings squeezed

Goldcorp (G-T, GG-N) may have surpassed its long-time rival Barrick Gold (ABX-T, ABX-N) in terms of market capitalization, but that doesn’t mean the company has been insulated from the same bear market that has felled other senior producers.

The company reported first-quarter results that failed to impress investors, as profits for the quarter fell relative to last year. The reasons for the slippage are all too familiar: the price of gold is falling and production costs are rising, which is a particularly toxic mix when it comes to equity valuations.

Goldcorp is still running a sound business, however, as evidenced by the US$309 million — or 33¢ per share — in net income it generated over the quarter. And while this is a good deal less than the US$479 million it generated around this time last year, it is still enough to help fund an aggressive growth program.

Goldcorp is building three new mines and plans to spend US$2.8 billion on capital expenditures this year.

But this quarter, there is no denying that the results fell short. On average, analysts were looking for earnings to come in at 39¢. Steve Butler, an analyst at Canaccord Genuity, was expecting earnings of 43¢ and 645,400 oz. production, rather than the 614,600 oz. that was produced.

Butler’s estimate was missed mainly due to lower grades at Goldcorp’s Penasquito polymetallic mine in Mexico and lower recovery rates. While the company warned the market about the drop-off, Butler argued that the degree to which the levels dropped was a surprise to the downside.

Goldcorp remains optimistic, however, saying that it expects gold production will ramp-up as the year progresses, while operating costs should fall. The optimism is based on its projection of moving through lower grades at both Penasquito and Alumbrera in Argentina, while more production comes on stream from Pueblo Viejo, a new mine in the Dominican Republic in which it has a joint-venture partnership with Barrick.

The 614,600 oz. in company-wide gold production in the quarter was actually up from the 524,700 oz. it produced last year. And while gold sales rose 49,300 oz. over last year to 595,100 oz., the drop in the average realized price to US$1,622 per oz. from US$1,707 per oz. took its toll. Total cash costs, on the other hand, calculated on a net of by-product basis, reached US$565 per oz. from US$251 per oz.

The company updated investors on its Cerro Negro project in Argentina. It was expected to come online at year-end, but with a power permit arriving late, it is now targeting the first quarter of 2014.