Goldcorp Reports First Profit in Three Quarters Amid Cost Cuts

  • Miner said it will target $250 million a year in efficiencies
  • Company expects output to drop 15% in Q2, full-year unchanged

Goldcorp Inc. reported its first profit in three quarters, beating analysts’ estimates, as costs fell more than expected.

First-quarter net income was $80 million, compared with a net loss of $87 million a year earlier, Vancouver-based Goldcorp said Wednesday in a statement. Excluding one-time items, earnings were 10 cents a share, beating the 4-cent average of 18 estimates compiled by Bloomberg.

Like its peers, the world’s third-largest gold producer by market value has been working to strengthen its balance sheet. The company had average all-in sustaining costs of $836 an ounce of gold in the first quarter, compared with $894 for all of 2015 and the $861.50 average of four estimates compiled by Bloomberg.

Sales declined 7.2 percent to $944 million, less than the $984.7 million average estimate, amid lower prices for bullion. While gold futures rose 17 percent in the first quarter, they were still down 2.7 percent in the period compared with a year earlier.

Output Rises

First-quarter gold output rose to 783,700 ounces, compared with 724,800 a year earlier and in line with the 784,000 average of eight estimates. The company confirmed its 2016 production guidance of 2.8 million to 3.1 million ounces despite expecting a drop of about 15 percent in the second quarter. Planned lower-grade mining sequences in most mines as well as a 10-day mill shutdown for maintenance at the Peñasquito mine in Mexico were cited as the reasons.

The company said it will target $250 million a year in savings by making its mines and corporate operations more efficient. This includes decentralizing the organization, an increasingly popular strategy among miners including Barrick Gold Corp.

The first-quarter results are the first since Chief Executive Officer David Garofalo officially replaced Chuck Jeannes in February. Meeting analysts’ expectations was seen as a key hurdle for Goldcorp since the miner has missed estimates in five of the six previous quarters.

“Goldcorp has been later to the restructuring story than some of the other miners,” Kenneth Hoffman, a Bloomberg Intelligence senior analyst, said by e-mail last week. The company has expanded aggressively in recent years, acquiring new mines, and analysts want evidence these will operate smoothly within the portfolio at low costs, Hoffman said. “The questions for David Garofalo will be how the company looks two to three years down the road and what its cost structure will be.”

Goldcorp’s stock plunged Feb. 26, the day after the company posted a large impairment charge that near doubled its fourth-quarter loss. Since then, the shares have recovered, though less than its larger competitors Barrick and Newmont Mining Corp.

The earnings report was released after the close of regular trading in New York, where Goldcorp rose 3.5 percent to $18.50 at 6:01 p.m. The shares increased 55 percent this year in New York through the close, compared with 84 percent for the 30-company Philadelphia Stock Exchange Gold and Silver Index.

Although the company had negative free cash flow of $101 million in the first quarter of 2016, compared with negative $321 million in 2015, Goldcorp expects to be “substantially free cash flow positive for 2016,” it said in the statement.

(Goldcorp scheduled a conference call to discuss the results at 1 p.m. New York time Thursday, accessible in the U.S. and Canada at 1-800-355-4959 and for other callers at 416-340-2216. The conference ID# is: 5644646)

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