The performance of gold miners has not been inspiring so far this earnings season. Goldcorp Inc. (GG) could not break out of the mould, as its second quarter-2012 results failed to impress. The company’s adjusted earnings (excluding one-time losses and gains other than stock-based compensation) dropped to 34 cents a share in the quarter from 45 cents last year, missing the Zacks Consensus Estimate of 41 cents.

Goldcorp indicated a weak quarter when it released its second quarter production guidance and reduced its full year forecast earlier this month. Weak production from the Red Lake mine in the first half of the year and lower expectations from the Pe?asquito mine for the second half forced the company to slash its targets.

These bottlenecks led to a 45% year-over-year drop in reported profit to $268 million (or 26 cents per share) in the second quarter from $489 million, or 52 cents per share, last year.

Also, revenues plunged almost 16% year over year to $1,113 million, and comprehensively missed the Zacks Consensus Estimate of $1,419 million. Gold sales went down to 532,000 ounces in the quarter from 606,400 ounces in the prior-year period.

Average realized price of gold increased roughly 5.3% year over year to $1,596 per ounce. However, declining sales coupled with escalating costs hindered the company’s performance in the quarter. To put things in perspective, total cash costs of gold on a by-product basis jumped almost 12% from last year, wiping out the effects of an increase in gold price.

Mining Highlights

At the Red Lake Mine in Canada, gold production went down almost 33% to 104,000 ounces and total cash cost was $568 per ounce, a year-over-year jump of almost 62%. Problems faced in the first quarter by Goldcorp at Red Lake continued in the second quarter.

Sluggish de-stressing activity due to unfavorable ground conditions in the High Grade Zones delayed access to the planned high grade stopes. In addition, lower grades in the Footwall Zones also dragged down gold production. The company will continue to evaluate Red Lake’s long-term production profile and expects the mine to produce between 460,000 and 510,000 ounces this year till further studies are carried out.

At Pe?asquito in Mexico, gold and silver production increased 78% and 43% to 103,800 ounces and 6,570,700 ounces, respectively, from last year. Insufficient water supply in June affected mill throughput at Pe?asquito in the second quarter. The area is experiencing protracted drought conditions, leading to below average water recharge in the well field and lower water production from the pit de-watering program.

Goldcorp is trying to resolve the situation by drilling more wells and ramping up the quantity of water reclaimed from the tailings facility. However, it expects that the problem will persist in the remainder of 2012.

At Los Filos in Mexico, gold production went down 2% to 85,200 ounces at total cash costs of $531 per ounce, an increase of 22% over last year. The construction of the heap leach pad facility was completed in the quarter as per schedule.

At Porcupine in Ontario, gold production increased 20% from last year to 74,900 ounces at total cash cost of $674 per ounce. The positive performance was a result of higher grades and recoveries.

At Marlin in Guatemala, gold and silver production in the quarter fell 28% and 15% to 56,700 ounces and 1,613,400 ounces, respectively, from the year-ago period. The drop in production was in accordance with the mine plan, after the conclusion of open pit mining operations in the Marlin pit at the end of 2011.

Financial Position

As of June 30, 2012, cash and cash equivalents were $1.2 billion versus $1.4 billion as of June 30, 2011. The company’s cash from operations increased to $554 million in the quarter from $330 million last year.

Project Updates

Goldcorp has almost completed the construction of the Pueblo Viejo project, where it holds 40% interest with the rest owned by Barrick Gold Corporation (ABX). Gold production at Pueblo Viejo is expected to begin in August.

Construction and exploration activities continued at the ?l?onore project in Quebec and the Cochenour project in Ontario. Diamond drilling is in progress at Cochenour with three drills on the surface to define the top portion of the Bruce Channel deposit and additional resources.

However, work remains suspended at the El Morro project in Chile since April 30, 2012, as Goldcorp awaits correction by the Chilean Environmental Permitting Authority regarding certain deficiencies identified by a ruling of the Court of Appeals of Antofagasta.

Based on fruitful exploration efforts by Goldcorp at Red Lake, Cerro Negro and Camino Rojo, the company has increased exploration expenditures to $226 million from $200 million.

Outlook and Recommendation

Goldcorp expects to produce to 2.35 to 2.45 million ounces of gold in 2012, down from the earlier expectation of 2.6 million ounces. Total cash costs are expected in the range of $310 to $340 per ounce of gold on a by-product basis, up from the previous estimate of $250 and $275.

On a co-product basis, it expects cash cost of $625 to $650 per ounce of gold versus the previous estimate of $550 to $600 per ounce. Copper production guidance has remained unchanged at 110 million pounds.

We currently have a long-term Neutral recommendation on Goldcorp. The company, which competes with Barrick Gold Corporation and Newmont Mining Corp. (NEM), holds a Zacks #5 Rank, indicating a short-term Strong Sell rating.

To read this article on Zacks.com click here.

Zacks Investment Research