Goldcorp (GG, Financial) (TSX:G, Financial) will release operating and financial results for the first quarter on Wednesday after market close.
For the first three months of this year, with gold trading on average at $1,219.36 per troy ounce, a 3.23% increase from the comparable quarter of 2016 when the precious metal traded on average at $1,181.21 per troy ounce, analysts forecast that the Canadian gold producer will close the quarter with an EPS of 8 cents. This is an 11.12% decrease from earnings of one year ago.
Source: Yahoo Finance
Revenue is forecasted to come in at $855.27 million for the quarter, ranging between a low of $795.41 million and a high of $990.7 million, a 9.40% decline from the comparable quarter of 2016 when Goldcorp closed with revenue of $944 million based on a gold production of 784,000 ounces and gold sold of 799,000 ounces.
Goldcorp also produces and sells silver, copper, lead and zinc which represent 10.5%, 0.1%, 2% and 4.5% of the miner’s total revenue with their sales.
For the first quarter of 2017, the Canadian miner should have produced between 593,750 ounces and 656,250 ounces of gold, between 5.94 million ounces and 6.56 million ounces of silver, between 77.19 million pounds and 85.31 million pounds of zinc, between 29.69 million pounds and 32.81 million pounds of lead and between 9.98 million pounds and 11.03 million pounds of copper.
Revenue for the quarter will depend on the volume of ounces of gold and silver, and on the pounds of zinc, lead and copper that Goldcorp has sold in the first three months of the year and on the price that the miner has realized for the sale of the metals. The latter cannot be so different from the following average prices on the respective markets: $1,219.36 per troy ounce of gold, $17.4232 per ounce of silver (up 17.5% on a year-over-year basis), $2.691 per pound of copper (up 26.6% on a year-over-year basis), between $1.2 and $1.3 per pound of zinc and between $1.0 and $1.1 per pound of lead.
According to the company’s guidance on production, costs and capex, Goldcorp should report all-in sustaining cost (AISC) ranging between $807.5 per ounce and $892.5 per ounce of gold sold and between $475 per ounce and $525 per ounce of byproduct metal sold. For the first quarter, sustaining capex are expected to range between $166.25 million and $183.75 million, growth capex to range between $142.5 million and $157.5 million and for exploration the miner should have used funds of about $25 million.
The income statement of the first quarter should have been charged for $40 million in corporate administration expenses, for about $108.75 per ounce of precious metal produced in depreciation and for an amount of taxes computed on the before-tax income according to a rate of 40% to 45%.
In terms of gold production and ounces of the precious metal sold, the first quarter should be similar to the second quarter of 2016 when Goldcorp produced 613,000 ounces of gold and sold 616,000 ounces of gold. At the end of the second quarter of 2016, Goldcorp missed analysts’ expectations on EPS by 3 cents, generating a negative surprise of 150%.
Source: Yahoo Finance
In terms of AISC per one ounce of metal sold, the miner should book an improvement of nearly 26% from the second quarter of 2016 when Goldcorp reported an AISC of $1,067 and this will undoubtedly have a positive impact on the gold margin and on the bottom line.
Since the average price of gold on the LBM over the first three months is 4.7% lower than the realized average gold price per ounce in the second quarter of 2016 ($1,277) and the sustaining capex for first quarter of 2017 should be approximately $35 million higher than Goldcorp reported in the second quarter of 2016, the Canadian gold producer will likely close the quarter missing analysts’ expectations on earnings considering that 853.81 million is the volume of the miner’s total shares outstanding.
Not to mention, one very important element that is usually neglected by investors: The guidance on metals production for 2017 assumes a price of gold of $1,250 per ounce and a price of silver of $19.00 per ounce. This means that with gold and silver that traded below the assumed prices, Goldcorp may report fewer ounces of gold produced and therefore sold than I have estimated as mining the precious metal from the reserves at a lower than assumed market price is economically less convenient for the company that has to increase operations at higher grade deposits and decrease operations at lower grade deposits.
The higher the quality of an assets base is, the ampler are the possibilities of a miner to adjust operations according to the changes in the price of gold. Concerning this aspect, Goldcorp must pull in its horns if it wants to achieve a 20% increase in production and free cash flow and 20% decrease in costs over the next five years through organic growth.
With the last agreement reached with Barrick Gold Corp.Ă‚ (ABX, Financial) concerning the Cerro Casale project, the sale of noncore assets, such as Los Filos and Cerro Blanco, the acquisition of a new gold stream in El Morro mine and the planned acquisition of Exeter, it seems that the Canadian miner has taken up the right path.
Goldcorp is trading at $14.89 per share with a price-book (P/B) ratio of 0.96 and an EV to EBITDA ratio of 12.95.
Disclosure: I have no positions in Goldcorp.
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