Gold mining company Goldcorp’s (GG) adjusted net profits more than doubled to 25 cents in the fourth quarter of 2009 from 12 cents per share in the year-ago period. Earnings which benefited from high metal prices, were also ahead of the Zacks Consensus Estimate of 24 cents.
For the full year 2009, earnings were $588.2 million or $0.80 per share. Goldcorp was able to keep costs down in an inflationary environment. In the fourth quarter, cash costs were just US$289 an ounce.
On a GAAP basis, fourth-quarter profit fell to $66.7 million or 9 cents a share, from $958.1 million, or $1.31 a share. The large drop was due to revaluation of future income tax liabilities, brought about by the sharp year-on-year drop in the U.S. dollar.
Quarterly revenues jumped 28% to $778.3 million, as prices of the gold, copper and silver rose sharply after the price crash of late 2008. The company sold 573,100 ounces of gold in the quarter.
For the full year, revenues increased by 13% over 2008 to $2.7 billion on gold sales of 2.3 million ounces. Earnings from operations were up 21% year over year to $241 million.
Golcorp produced 601,300 ounces of gold at a total cash cost of $289 per ounce for the quarter ended December 31, 2009. For the year, the company produced 2.42 million ounces of gold at a total cash cost of $295 per ounce.
Operating cash flows, before working capital changes, totaled $1.2 billion, or $1.61 per share, a 29% increase over 2008. Long-term debt as of Sep 30, 2009 was $719 million, considerably higher than $5.3 million as of Dec. 31, 2008. Goldcorp embarked upon external sources to finance its capital expenditure. However, with cash and cash equivalents of $874.6 million as of December 31, 2009, higher debt should not be a major concern for Goldcorp.
The Vancouver-based gold company also managed to keep its development projects on-time and on-budget. Goldcorp, which recently acquired exploration firm Canplats Resources, as well as 70% of the El Morro copper-gold deposit in Chile, expects to produce 2.6 million ounces of gold this year. Goldcorp completed two projects in 2009: the Camino Rojo project near Peñasquito and the El Morro project.
Goldcorp reported that the new Peñasquito mine in Mexico is expected to start commercial production in the third quarter of 2010. Production at the Éléonore project in Quebec is anticipated at around 330,000 ounces of gold a year over a 16-year mine life, with cash costs below $400 an ounce. The initial capital cost of the project is expected to be about $800 million.
Goldcorp is North America’s lowest-cost gold producer. The company owns and operates the Red Lake, Porcupine and Musselwhite gold mines in Canada. Goldcorp has one of the best production profiles in the industry and competes with major gold producers like Barrick Gold Corporation (ABX), Kinross Gold Corporation (KGC) and Yamana Gold Inc. (AUY).
Goldcorp is developing new mines to be beneficial in times of higher gold prices. However, the company is exposed to foreign exchange risk as it pays most costs in local currencies and sells metal in dollars, hurting profits when currencies such as the Mexican peso and Canadian dollar rise, in spite of the company selling more gold at higher prices. We maintain our Neutral recommendation on the stock.
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