January 8, 2013 / 8:48 PM / 5 years ago

Goldcorp shares rise with focus on accounting change

* New metric to make clear “true cost” of mining

* Part of drive to narrow share price/gold price gap

* Miner cuts 2013 output targets, boosts capital costs

* Shares up 2.88 pct at C$35.69 after early drop

By Julie Gordon

TORONTO, Jan 8 (Reuters) - Investors in Goldcorp Inc, Canada’s second largest gold miner, shrugged off the company’s lowered production outlook on Tuesday and took heart from its decision to bring more transparency to how it will report mining costs, sending its shares up.

Responding to intense market concerns over the industry’s skyrocketing production costs, Goldcorp said it would introduce “all-in cash costs,” a new metric designed to reflect more accurately the spread between costs and realized bullion prices.

The company, the first major producer in the industry to report all-in costs, said the calculation would make the true costs of doing business clearer to the market.

“I’m glad to see they are leading the industry with this,” said George Topping, an analyst with Stifel Nicolaus.

All-in costs include capital to keep operations up and running and administrative and exploration expenses, in addition to the traditional “co-product cash costs,” which provide the cost of producing the gold itself.

Goldcorp will still report “by-product cash costs,” which include a credit for other ores extracted during the gold-mining process.

“You may be asking why, from a marketing standpoint, are we choosing to change,” Chief Executive Chuck Jeannes said on a conference call with investors on Tuesday. “The answer lies in the need for our industry to face head-on the issue of gold equity valuations versus the price of gold.”

Gold prices climbed about 7 percent in 2012 while most top gold-mining shares ended the year sharply lower because of soaring capital and mining costs. Goldcorp shares ended 2012 down nearly 20 percent.

Shares of the Vancouver-based miner rose 2.88 percent to C$35.69 on Tuesday afternoon on the Toronto Stock Exchange.


Late on Monday, the company slashed its 2013 production outlook and said capital costs would increase at its development projects. Goldcorp’s shares fell at market open, but they quickly recovered as analysts noted most of the bad news was already priced into the sock.

“The company share price has been under pressure over the past few months partially due to the uncertainty of the 2013 outlook,” said BMO Capital Market analyst David Haughton in a note to clients.

“The wide range of the 2013-2017 production guidance and higher costs clears the path for better stock performance as the company executes the plan.”

Goldcorp began a major review of all its development projects late last year and had warned that it was vulnerable to the cost creep that has dragged on its peers.

The company now expects 2013 production to be some 2.55 million to 2.8 million ounces, well below an earlier forecast of some 3.2 million ounces. Cash costs, excluding by-product credits, are expected to be in the range of $700-$750 per ounce, up from about $645 per ounce in 2012.

Using the new all-in metric, cash costs climb to $1,000-$1,100 per ounce, compared with about $865 per ounce in 2012.

On the development side, the cost of building the Cerro Negro project in Argentina has climbed almost 70 percent to $1.35 billion from a previous estimate of around $800 million. Cerro Negro, on track for first gold in late 2013, is expected to produce some 525,000 ounces a year in its first full five years of production.

Development costs at the Eleanore mine in Canada also rose, with the 600,000 ounce-a-year project now set to cost around $1.75 billion. All told, Goldcorp is planning some $2.8 billion in capital spending in 2013.

The miner said it sees gold output set to climb to some 3.2 million-3.5 million ounces in 2014. By 2017, production is expected to hit some 4.0 million-4.2 million ounces of gold.

“While this is a disappointing update, they are really the only senior company with significant growth over the next couple of years,” said Topping. “This really is the only company with a story to tell.” (Reporting by Julie Gordon; Editing by Frank McGurty and Leslie Adler)

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