UPDATE 2-Goldcorp takes big charge, gold price fall hits profit

Thu Jul 25, 2013 10:38am EDT
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By Julie Gordon
    TORONTO, July 25 (Reuters) - Goldcorp Inc, the
world's largest gold miner by market capitalization, posted
weaker-than-expected second quarter results on Thursday, hit by
a sharp drop in the gold price and a $2 billion non-cash
impairment charge.
    Shares of the Vancouver-based miner were down 0.24 percent
to C$29.17 shortly after market open in Toronto.
    Goldcorp's net loss in the quarter was $1.9 billion, or
$2.38 a share, compared with a profit of $268 million, or 41
cents a share, in the year-ago period.
    The company said the after-tax charge was primarily related
to exploration potential at its Penasquito mine in Mexico, where
lower metal prices have had a significant impact on the in situ
market value.
    "It's a non-cash item, so we're not too bothered with that,"
said George Topping, a mining analyst at Stifel Nicolaus, of the
impairment charge. "If gold prices go back up, it will be
written back up again."
    Goldcorp's peers Barrick Gold Corp and Kinross Gold
Corp both had major project-related writedowns last year,
and analysts expect more to come. Barrick has already signaled
further impairment charges when it reports next week.
    Bullion prices have fallen sharply so far this year, hitting
a near 3-year low of about $1,180 an ounce in late June.
Goldcorp's realized gold price dropped 15 percent to $1,358 an
ounce in the quarter, down from $1,596 a year ago.
    In light of the declining gold price, the company said it is
reviewing its short-term operating plans and cutting 2013
capital spending by $200 million to $2.6 billion. 
    Goldcorp will defer some spending through 2014 at its three
mines under construction - Cerro Negro in Argentina and Eleonore
and Cochenour in Quebec - but said the reductions are not
expected to have a material impact on project timelines.
    The miner has targeted a 10 percent cut to general and
administrative costs in 2013, and reduced exploration spending
by $25 million.
    Goldcorp also said it had found a new water source for its
mill at Penasquito, removing a key obstacle to ramping it up to
design capacity. Construction on the new well field will start
in the fourth quarter and is set to cost about $150 million.
    Adjusted to remove one-time items, earnings were 14 cents a
share, coming in below the average analyst expectation of 22
cents a share, according to Thomson Reuters I/B/E/S.
    "The headline miss is explained by the lower gold price,
mainly," said Topping. "They sold a lot of their quarterly
production in June, just when the gold price was hitting it's
    Gold production rose 12 percent to 646,000 ounces, while
silver production fell 12 percent to 7.2 million ounces. All-in
sustaining costs were $1,279 per gold ounce in the quarter,
while co-product cash costs rose 15 percent to $713 an ounce.
    Goldcorp said it remains on track to produce some 2.55
million to 2.8 million gold ounces in 2013, at all-in sustaining
costs of $1,000 to $1,100 an ounce.
    Revenue declined 18 percent to $889 million in the quarter,
despite a 17 percent increase in gold sales, as lower precious
metal prices weighed.