Goldcorp Profit Rises in 4Q

Zacks

Goldcorp Inc.’s (GG) adjusted net earnings were $531 million or 66 cents per share in the fourth quarter of 2011, compared with $431 million or 59 cents in the year-ago quarter. Results exceeded the Zacks Consensus Estimate of 60 cents per share.

For the full year, adjusted earnings came in at $1.8 billion or $2.22 per share, compared with $1.0 billion or $1.43 in 2010, missing the Zacks Consensus Estimate of $2.23 per share.

Revenue

In the fourth quarter of 2011, revenues increased to $1.5 billion compared with $1.3 billion in the prior-year quarter. Gold sales in the quarter amounted to 685,000 ounces compared with 678,600 ounces in the year-ago quarter.

The average realized gold price for the quarter rose 20.7% to $1,663 per ounce. Cash costs totaled $261 per ounce on a by-product basis and $529 per ounce on a co-product basis. This compares with cash costs of $164 per ounce on a by-product basis and $472 per ounce on a co-product basis in the comparable year-ago quarter.

Mining Update

Mexico: At the Penasquito mine, gold and silver productions were 82,300 ounces and 5,865,600 ounces, respectively, for the fourth quarter of 2011. Lead and zinc production in the reported quarter totaled 46.1 million pounds and 97.9 million pounds, respectively. Cash costs for the reported quarter on a co product basis were $768 per ounce of gold. The mine is expected to ramp up to full design capacity early in 2012. Gold production in full year 2012 is expected to be 425,000 ounces at negative by-product cash costs.

At Los Filos, gold production was 85,200 ounces at total cash costs of $503 per ounce, led by increased tonnage processed, higher solution throughput and higher grades. The construction of the next phases of the heap leach pad facility started during the fourth quarter of 2011 with completion expected in the second quarter of 2012. 

Canada: At the Red Lake Mine, gold production was down 17.6% to 154,000 ounces and total cash cost was $374 per ounce. During 2012, production is expected to benefit from an increase in tonnes mined from lower-grade zones, with gold production expected to total 650,000 ounces. 

At Porcupine in Ontario, gold production during the quarter totaled 74,700 ounces at a total cash cost of $593 per ounce. Gold production increased 10% year over year due to strong grade and tonnage contributions from the Dome underground operation.

The Hoyle Pond Deep project advanced during the quarter. A pilot raise was completed to align the shaft in preparation for the commencement of shaft sinking planned for the first half of 2012.

In January 2012, the company received approval for the Hollinger open pit project. The construction of the project has already started and is expected to continue for 12 to 18 months. The mine is expected to begin production in the third quarter of 2012.

Guatemala: At Marlin in Guatemala, gold production increased 41.6% to 130,700 ounces while silver production increased 30.9% to 2,822,600 ounces. Gold production at Marlin in 2012 is expected to total approximately 210,000 ounces. 

Financial Position

During the quarter, the company entered into a $2.0 billion credit facility with a syndicate of 15 lenders.  The credit facility replaced the existing $1.5 billion credit facility and is intended to be used to finance growth opportunities and for general corporate purposes. As of December 31, 2011, cash and cash equivalents were $1.5 billion versus $556 million as of December 31, 2010. 

Projects in Pipeline

PuebloViejo: Construction of Pueblo Viejo in the Dominican Republic is more than 90% complete due to a delay caused by a major rainfall in May 2011.  The project is expected to start contributing to Goldcorp’s production by the middle of 2012. The project is, however, expected to be in full swing with an annual average of 415,000 ounces to 450,000 ounces of gold in the first five years of full production at cash costs of less than $350 per ounce.

As part of a long-term optimized power solution for Pueblo Viejo, a plan is being advanced to build a dual fueled power plant at an estimated incremental capital cost of about $300 million (100% basis) or $120 million (Goldcorp's 40% share). The new plant is expected to provide lower cost and long-term power to the project.

Cerro Negro: The project received approval of the amended Environmental Impact Assessment (EIA) from the Provincial authorities and therefore mining will initially take place in the Eureka, Mariana Central and Mariana Norte veins. 

Production is expected to average approximately 550,000 ounces of gold in its first five full years of production. The project is expected to have throughput of 4,000 tons per day.

Eleonore project: The project in Quebec has commenced construction of the production shaft and associated infrastructure following receipt of the certificate of authorization issued by the Quebec Minister of Sustainable Development, Environment and Parks. The exploration ramp has now expanded to 831 metres in length. Once shaft sinking is completed, the development work will facilitate the first drilling of the deeper parts of the ore body to be carried out during the fourth quarter of 2012.

Cochenour: Construction of the five-kilometer Cochenour-Red Lake Haulage Drift advanced to 36% at the end of last year, and two drills continue to test the exploration potential of this under explored area. The sinking of the Cochenour shaft continues to progress. During 2012, sequencing of near-shaft exploration and initial ore body definition will progress and the ultimate shaft depth and extent of development required will be defined with additional drilling planned in 2012.

Camino Rojo: The geologic model and an updated resource block model were mostly completed by the end of 2011 and will form the basis of the mine plan for the feasibility study, which is on track for completion in mid-2012.

El Morro: At Noche Buena, geologic modeling is underway and will form the basis of the resource to be used in the feasibility study, which is expected to be available by mid-2012.

In January 2012, the company announced its decision to proceed with the construction of the 70%-owned El Morro copper-gold project in Chile.  Over its 17-year mine life, El Morro is expected to produce an average of over 210,000 ounces of gold and 200 million pounds of copper per year to Goldcorp's account. 

Outlook

For 2012, Goldcorp anticipates a 4% increase in the production of gold to 2.6 million ounces. Total cash costs are expected between $250 and $275 per ounce of gold on a by-product basis and between $550 and $600 per ounce of gold on a co-product basis. As per the company, the first out of its four major new sources of gold production is expected to drive overall gold production by 70% by 2016.

Goldcorp retains a Zacks #3 Rank, which translates into a short-term (1 to 3 months) “Hold” rating, and we have recommended the shares of the company as “Neutral” for the long-term (more than 6 months). The company competes with Barrick Gold Corporation (ABX) and Newmont Mining Corp. (NEM).

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