Goldcorp delays Argentina project, warns on Mexico tax

Reuters

By Nicole Mordant and Allison Martell

VANCOUVER/TORONTO, Oct 24 (Reuters) - Goldcorp Inc raised its cost estimate for building a gold mine at its CerroNegro site in Argentina by up to a third on Thursday, and saidproduction at the project, which is one of the company's threebig mining developments, would be delayed.

Goldcorp, the world's biggest gold miner by market value,also said a 7.5 percent royalty proposed by Mexico on miningcompanies will likely drive away its new investments if itcannot get the returns it wants.

The Vancouver-based miner said it had increased its capitalcost estimate on Cerro Negro to between $1.6 billion and $1.8billion from $1.35 billion before. In 2011, Goldcorp estimatedthe cost at $749 million.

Cerro Negro has faced several challenges, including apermitting delay that held up construction of a key power line,rapid inflation in Argentina, the country's high taxes, and someproductivity problems.

Goldcorp also said it has suspended further exploration atCerro Negro, and has deferred some development there. Firstproduction will be delayed by at least three months, to midyear2014.

Even so Goldcorp's stock ended 4.5 percent higher on theToronto Stock Exchange at C$27.76 after the gold miner reportedbetter-than-expected third quarter earnings. Other gold miningstocks were also firmer, boosted by a stronger gold price.

"We continue to believe that despite the challenges beingfaced in Argentina, Goldcorp remains the best senior goldproducer, in terms of quality of asset base, production growth,and a solid balance sheet," Scotia Capital Tanya Jakusconek saidin a note to clients.

Goldcorp now expects to produce between 130,000 ounces and180,000 ounces of gold from Cerro Negro in 2014, down from aprevious forecast of about 400,000 ounces.

Soaring costs and a steep drop in the price of gold haveprompted miners of the metal to slow down or cancel new projectsaround the world.

Along with the Cochenour project in Ontario and Eléonore inQuebec, Cerro Negro is one of Goldcorp's most important newdevelopments for boosting gold output over the next five years.

Goldcorp will "continue to engage at the provincial andfederal levels in Argentina to see constructive solutions to thechallenges before us at Cerro Negro", Chuck Jeannes, Goldcorp'schief executive said on a conference call.

MEXICAN TAX

The proposed Mexican royalty on mining companies' pre-taxearnings could push Goldcorp's overall tax rate in Mexico intothe mid-40 percent level and make it one of the highest-costjurisdictions for the miner, Jeannes said in an interview.

He said the royalty will not push Goldcorp to close down anyexisting operations in Mexico but it would make the miner thinktwice about developing new mines.

"My concern is that this will impede new investment in thecountry as opposed to cause us to shut anything down today,"Jeannes said specifically mentioning Goldcorp's Camino Rojoproject where exploration is continuing.

Goldcorp's operations in Mexico include the Penasquito mine,which is one of its biggest new mines, Los Filos and El Sauzal.It also has a second development project, Noche Buena.

The royalty proposal is part of President Enrique PenaNieto's plan to bolster Mexico's feeble tax haul, a reform whichfocuses on reaping more income tax from higher earners, closingcorporate loopholes and widening the tax base. Mexico's Senate technically has to approve the fiscal reformbill by the end of the month. If approved it will be effectivefrom Jan. 1, 2014.

Jeannes said Goldcorp was in talks with government officialson the proposal.

EARNINGS DOWN, OUTPUT, COST FORECASTS LARGELY UNCHANGED

Earlier, Goldcorp said its net earnings for the thirdquarter fell to $5 million, or 1 cent a share, from $498million, or 61 cents a share, a year earlier on the back ofweaker gold prices.

Excluding some one-off and unusual items, profit declined to$190 million, or 23 cents a share, from $441 million, or 54cents a share, in the year-before quarter. Revenue fell to $929million from $1.28 billion.

Analysts, on average, had expected earnings of 20 cents ashare on revenue of $1.11 billion, according to Thomson ReutersI/B/E/S.

Gold prices have fallen sharply since the beginningof the year, nearing a three-year low at about $1,180 an ouncein late June. Gold was at about $1,347 on Thursday, down 20percent this year.

Goldcorp's average realized gold price for the quarter was$1,339 per ounce, down from $1,685 an ounce a year earlier.

All-in sustaining costs rose to $992 per ounce from $801 anounce. Gold sales rose 5.5 percent to 652,100 ounces.

For 2013, Goldcorp narrowed its gold production outputforecast to between 2.6 million and 2.7 million ounces at anall-in sustaining cost of between $1,050 and $1,100 per ounce.Last quarter it said it expected to produce 2.55 million to 2.8million gold ounces in 2013, at all-in sustaining costs of$1,000 to $1,100 an ounce.

Capital spending remains on track at $2.6 billion.

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