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Goldcorp reports $1.93 billion Second Quarter loss

By Lindsay Briscoe

After a second quarter net loss of $1.93 billion and amid a volatile gold price environment, Goldcorp’s top executives say the “need for increased financial discipline is more important than ever” as they move into the third quarter of 2013.

The loss is mainly attributable to a major write-down at the Goldcorp Peñasquito Mine in Mexico.

“Peñasquito continues to possess strong exploration upside, but due to lower metals prices, the current in situ market value of exploration potential has decreased significantly,” Chief Executive Chuck Jeannes said in a statement.

Jeannes also pointed to a “temporary increase in inventory” in Red Lake as having played role in the loss.

“Our poured gold production is based on the number of ounces contained in the physical bars which are the end product of our process,” explains Red Lake Gold Mines Mine General Manager Chris Cormier. “The gold we mine and then mill which was not able to be poured remains in our mill circuit in a number of forms. This is what is referred to as inventory and if it was not able to be sold within the quarter it does not add to the revenue that the company reports, so hence it’s inventory. This fluctuates every month and is part of the normal production process.”

To make matters worse, nearly half of the total quarterly gold and silver sales happened in the month of June when metal prices were particularly low.

Moving forward the company has identified opportunities to defer capital expenditures at Cochenour, Cerro Negro and Éléonore – its three projects currently under construction – but says the “reductions involve non-critical path items and are not expected to have material impacts to the project schedules or the timing of initial gold production and ramp-up to commercial production.”

Other opportunities to reduce spending have been identified at Camino Rojo, El Morro and Cerro Blanco – the three early-state development projects – and at its mines already in operation. These measures are expected to reduce 2013 capital expenditures by approximately $200 million to $2.6 billion.

Jeannes adds that the company will follow the contingency plan introduced in the first quarter of 2013, particularly if gold prices dip below $1200 and stay there for too long.

“…because we’re down below a 1400 gold price environment, we’ve looked at cuts at G and A (general and administrative) and exploration and some deferral of non-critical capital spending and I just want to highlight again that doesn’t impact our near term production…We get down into the 1200 dollar and below price environment for a period, we have to start looking at whether some of the high cost operations should be sustained at that level,” Jeannes said to investors and media during a July 25 conference call. “As I said last quarter, the high cost operations are well aware of that and I guarantee you they’re working very hard to reinvent themselves so that they can look at different configurations and be free cash flow positive at $1200.”

Second quarter production, across the board, progressed as planned.

Red Lake and Cochenour

Gold production for the second quarter at Red Lake was 122,500 ounces (down from 145,500 in the first quarter) at a total cash cost of $523 per ounce on a by-product basis (down from $565 per ounce on a by-product basis). Second quarter drilling results from the NXT zone show the zone is open vertically and to the west. A number of drills will keep working throughout the year on the NXT zone from the 4199 level exploration drift.

The haulage drift between the Campbell Complex and Cochenour is approximately 76 per cent complete and the shaft widening has reached a depth of 716 m. Two drills continue to work from the haulage drift to test the underexplored area both above and below the drift. Underground exploration and diamond drilling of the Bruce Channel deposit will start once the haulage drift is close enough and drilling platforms are excavated.

In addition to moving forward with the Cochenour project, the team there is working closely with the Red Lake team to integrate Cochenour into the larger Red Lake operation and to “maximize the value of not only this asset but the existing facilities in the district.”

2013 Second Quarter Financial Highlights

Total revenues of $889 million
Gold sales of 624,300 ounces
$646 per ounce on a by-product basis; $713 per ounce on a co-product basis
Adjusted net earnings were $117 million, or $0.14 per share

2013 First Quarter Financial Highlights

Total revenues of $1 billion
Gold sales of 595,100 ounces
$565 per ounce on a by-product basis; $710 per ounce on a co-product basis
Adjusted net earnings of $253 million, or $0.31 per share

Net loss in the quarter totalled $1.93 billion compared to net earnings of $268 million in the second quarter of 2012.

The average realized gold price for the quarter was $1,358 per ounce compared to $1,596 per ounce in the second quarter of 2012.

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