Before the release of the first-quarter earnings, shares of Goldcorp Inc. (GG, Financial) closed up 17 cents or 1.18% Wednesday on the New York Stock Exchange at $14.53, signaling that it would be a positive quarter for the Canadian producer.
And so it was.
On the back of rising precious metal prices, earnings jumped 122.2% compared to one year ago –Â to 20 cents per share. The miner also beats analysts’ expectations on earnings by 12 cents generating a positive surprise of 150%. For the quarter in question analysts forecasted that Goldcorp would close the statement of earnings showing 8 cents at the bottom line. This was an average of 19 analysts’ estimates who were surveyed on Goldcorp’s first-quarter earnings.
Source: Yahoo Finance
Higher realized gold price dragged by a significant rise leading the precious metal topping at $1,255 per troy ounce on the London Bullion Market (LBM) at the end of February was the main driver of the first-quarter earnings. While gold averaged $1,219.36 per troy ounce on the LBM, Goldcorp realized $1,236 on average for the sale of one ounce of gold, up 2.7% on a year-over-year basis and up 4.7% compared to the last quarter of 2016.
The Canadian gold producer could also realize a higher average price from the sale of one ounce of silver: $15.47 per ounce in the first quarter versus $13.56 per ounce in the first quarter of 2016.
The sale of gold makes up more than 75% of Goldcorp’s revenue that in the first quarter came in at $882 million, a 6.6% decrease from the revenue of one year ago. However, the company beats analysts’ expectations on revenue by $26.73 million.
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Source: Yahoo Finance
First quarter’s revenues were affected by a lower volume of ounces of gold and silver sold during the period due to lower production at Red Lake, Los Filos and Cerro Negro. In contrast Goldcorp reported a higher production at Peñasquito, but this was not enough to counterbalance the before mentioned production reductions.
In general, the miner produced 655,000 ounces of gold during the first quarter, a 16.5% decrease from the production of the same quarter in 2016. The decrease was mainly due to lower production at Cerro Negro, still as a consequence of the workforce reduction program that the company put in place during summer 2016, lower tonnes of mineral mined from underground at Porcupine plus the processing of low grade stockpile, lower head grades of mineral mined at Musselwhite and due to lower grade at Red Lake plus maintenance works undertaken by the miner at the mill.
Increases in the production at Penasquito, thanks to higher mill throughput and higher ore grade and at Eleonore mine following the production ramp-up as scheduled with the feasibility study, could only partially offset the aforementioned reductions.
Concerning the section of Goldcorp’s investment in associates and joint ventures, Pueblo Viejo mine produced fewer ounces of gold, approximately 95,000 ounces (14.5% of the total production) and a 17% decrease on a year-over-year basis, mainly due to lower grades of minerals mined and processed, and the shutdown of operations for maintenance works that took place in February.
During the first quarter the company sold 539,000 ounces of gold, an 18% decrease on a year-over-year basis, and 6.769 million ounces of silver, an 11% decrease on a year-over-year basis.
It also must be mentioned that lower sales volumes had a positive impact on earnings because the miner could charge the earnings’ statement with a lower amount for depreciation and depletion. The company also reports that “lower corporate administration and restructuring costs and a $33 million reduction in a provision to fund the company’s 37.5% share of Alumbrera’s reclamation costs” positively influenced the first quarter’s bottom line.
General increase in operating efficiencies achieved during the quarter together with higher realized byproduct prices and a stronger U.S. dollar versus the Mexican peso, enabled Goldcorp to sell one ounce of gold at a lower all-in sustaining cost (AISC)Â –Â $800 –Â compared to the same quarter of 2016 when the miner reported an AISC of $850 per ounce of gold.
In the first quarter of 2017, cash flow generated by the miner from operations was $227 million versus a CFO of $59 million in the comparable quarter of the year before.
The cash on hand and securities amounts to $212 million as of March 31, 2016, plus a line of available credit of $2.9 billion. The amount of debt is $2.081 billion, a 17% reduction from the previous quarter.
For 2017, Goldcorp expects to produce between 2.625 million ounces and 2.375 million ounces of gold with an all-in sustaining cost (AISC) ranging between $807.5 per ounce and $892.5 per ounce of gold sold and total cash cost ranging between $475 per ounce and $525 per ounce of byproduct metal sold.
In addition, the company says that “companywide exploration expenditures in 2017 are expected to total $100 million, of which approximately 40% is expected to be expensed.”
Disclosure: I have no positions in Goldcorp.
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