Goldcorp profits drop, says conditions at Red Lake will slow 2013 production

VANCOUVER – After reporting a 45 per cent drop in its second-quarter earnings, Goldcorp Inc. (TSX:G) warned that poor ground conditions at its Red Lake operation will continue to slow its gold production into next year.

But the Vancouver-based company said it expects that gold prices, which remained under pressure for much of the quarter, will rise soon.

“While it’s clear that a fiscal reckoning must occur over the longer term, it’s pretty apparent that weak economic conditions will continue to favour loose monetary policy for some time,” president and CEO Chuck Jeannes told analysts during a conference call Thursday.

“And in this environment, I think we could see the gold price test the $2,000 mark in the next six to 12 months.”

Bullion prices continue to hover around the prices seen in the second quarter, closing at $1615.10 Tuesday. Nevertheless, investors also seemed optimistic about a rise in gold prices, sending Goldcorp shares up 4.8 per cent or $1.66 to close at $36.50 Thursday on the Toronto Stock Exchange.

Goldcorp was forced to revise its production guidelines earlier this month because it was taking longer than anticipated to access the reserves in the Ontario mine’s high-grade zone.

Lower than expected grades of ore in other areas of the mine also cut into production in the previous quarter.

“Pending completion of the new mine-planning work, it’s prudent to assume that the conditions which slowed production this year will continue such that 2013 production will be similar to the range we’re now forecasting for 2012,” said Jeannes.

The company said it is drilling 10 new wells near the Penasquito mine in Mexico, where water shortages and drought conditions have also cut into production.

The wells should be completed by November and that should bring production at that mine back up to earlier levels, said Jeannes.

“Penasquito had been delivering a good second quarter until encountering water availability issues that limited plant throughput in June,” Jeannes said in a release.

“Operations at the rest of the mine portfolio remained solid, with particular strength at Porcupine and Los Filos.”

Canada’s second-largest gold company reported net earnings attributed to shareholders of $268 million, or 26 cents per diluted share, on Thursday.

That’s down from $489 million, or 52 cents per diluted share, in same period last year.

Revenue came in at $1.1 billion for the quarter compared to $1.3 billion year over year.

The miner reported adjusted net earnings of $332 million, or 41 cents per share, compared with $413 million, or 52 cents per share year over year — missing analyst expectations by six cents.

Analysts had on average expected Goldcorp to report a profit of 47 cents per share and two analysts expected $1.45 billion in revenue, according to those surveyed by Thomson Reuters.

Gold sales in the second quarter were 532,000 ounces on production of 578,600 ounces, compared to sales of 606,400 ounces on production of 597,100 ounces year-over-year.

Jeannes said the company is working hard to improve its production forecast and expects better results in the second half of the year.

“I want to apologize that our performance caused us to revise our 2012 guidance,” said Jeannes.

“As you all know, mining can be a difficult business to forecast, and in the case of these two important operations, we made assumptions about future performance that turned out to be incorrect.”

Goldcorp also said it’s increasing its exploration budget for 2012 to $226 million from $200 million, thanks to strong results in exploration at its Red Lake and Musselwhite mines, and at its growth projects, Cerro Negro and Camino Rojo.

The company has several projects in development and set to come into production over the next couple of years, and Goldcorp has said it expects to be producing 4.2 million ounces of gold per year by 2016.

It has mines as well as exploration and development projects in Canada, the United States, Mexico and Guatemala and Argentina. It employs more than 14,000 people.

Goldcorp shares were up $1.56 to $36.4 in late afternoon trading on the Toronto Stock Exchange.