Leading gold producer, Goldcorp’s (GG) adjusted net profit in the third quarter of 2009 more than doubled to 19 cents from last year’s 9 cents on higher gold prices and lower cash costs per ounce of gold. Reported earnings were also higher than the Zacks Consensus estimate of 15 cents. 

However, on a GAAP basis, net earnings dropped 62% to 16 cents from 42 cents in the previous year due to a foreign exchange loss of $28.1 million. Revenues were up 25% to $691.9 million from $552.2 million in the previous year driven by a 12% rise in average realized prices to $968 per ounce from $865 per ounce in the year-ago quarter and a 9% increase in gold sales volumes to 601,500 ounces. 

Gold production increased by 11% year over year to 621,100 ounces compared with 557,400 ounces in 2008 following higher production at the Red Lake and Porcupine mines in Canada, Wharf mine in US and El Sauzal mine in Mexico. Total cash cost of $295 per ounce of gold reflected a 15% decline from $346 per ounce in the same quarter of the previous year. 

Operating expenses increased modestly by $24.3 million year over year, primarily as a result of increases in labour and planned maintenance costs. Long-term debt as of Sep 30, 2009 was $712.2 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 equivalent of $785.3 million as of Sep 30, 2009, higher debt should not be a major concern for Goldcorp. The Canadian gold miner is the world’s second-largest by market value following the Toronto-based largest gold producer, Barrick Gold Corporation (ABX). 

Goldcorp has raised its 2009 production outlook and chopped its cost guidance for the full year 2009. Gold production for 2009 has been raised to 2.4 million ounces, from the 2.3 million ounces projected in July. Last month, the company had begun producing metal concentrates at the Penasquito mine in Mexico. The project, which will yield gold, silver, lead and zinc, is on schedule to be commissioned by the end of this year. 

Goldcorp has also lowered its forecast for 2009 bringing the total cash costs to about $300 an ounce, which includes revenue from silver and copper byproducts, from $365 an ounce forecast in May. Goldcorp is developing new mines to benefit from higher prices for gold. 

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.
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