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$1.93 billion in the second quarter compared to a profit of US$268 million, a year ago. That loss was triggered by the 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$1.83 billion, primarily caused by the decline in market value for the mine’s exploration potential or in situ value, Lindsay Hall, Goldcorp’s CFO, said 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 if the write-downs and other one-items are excluded, 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.
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 the month of 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 of gold and US$17.01 per oz of silver, well below the quarter’s average spot prices of US$1,141 per oz of gold and US$23.11 per oz of silver. That, along with roughly 14,000 oz of gold that were left in inventory at the Red Lake mine in Ontario, “significantly impacted our revenue and lead to a lower than expected earnings result,” Jeannes explained.
Gold production was in line with expectations at 646,000 oz of which it sold 624,300 oz, 15% more than the year ago. It also generated 7.18 million oz of silver, 35,400 lb of lead and 70,100 lb of zinc during the quarter.
Also affecting the bottom line were higher operating costs. Total cash costs rose 75% to US$646 per oz of 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 says it’s working on lowering mining costs across its operations while increasing productivity, with a focus on Penasquito.
It announced that it has located a new water source, the northern well field, within Penasquito’s existing permitted Cedros basin. Once constructed, the water source should allow the sulphate plant to reach its design capacity of 130,000 t/d. “Mill throughout has been limited by lower than expected water production in the current well field,” Goldcorp states in a release. The cost to develop the new well field is pegged at US$150 million, with construction anticipated to start by year-end.
Meanwhile, Goldcorp plans to pushback 2013 and 2014 capital costs at three of its growth projects currently under construction, namely Cerro Negro in Argentina, Éléonore in Quebec and Cochenour in Ontario, without impacting the project timelines as well as trim costs at its development projects along with sustaining capital at its operating mines. These initiatives are anticipated to lower capital costs in 2013 by US$200 million to US$2.6 billion.
In addition, Goldcorp expects to lower this year’s exploration budget to US$200 million from US$225 million earlier, and general administrative expense to US$164 million from US$180 million.
“We’re taking these actions to safeguard our financial strength and to 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 2.55 million to 2.80 million oz of gold at total all-sustaining costs of US$1,000 to $1,100 per oz.
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