* Aurizon sees 2011 production costs above prior forecast
* Aurizon sees 2011 gold output at lower end of forecast
* Gammon begun work to resume output from El Cubo
* Shares of Aurizon, Gammon lower on TSX (Wraps results of Aurizon and Gammon; in U.S. dollars unless noted)
By Euan Rocha
TORONTO, May 12 (Reuters) - Gold miners Aurizon ARZ.TO and Gammon Gold GAM.TO reported stronger first-quarter profits on Thursday, driven by the sharp increase in the price of the precious metal.
Shares of both Vancouver-based Aurizon and Nova Scotia-based Gammon dropped after the results, as part of a broad decline on the Toronto Stock Exchange that reflected a swoon in commodity prices.
For Aurizon, the share price also reflected its warning that gold output would come in at the low end of an earlier forecast range and production costs for the year will exceed earlier expectations.
First-quarter profit edged higher to C$2.45 million from C$2.40 million, as a large increase in exploration costs offset most of the gains from stronger operating margins.
On a per share basis, earnings in the quarter were unchanged at 2 Canadian cents, Aurizon said.
Aurizon owns the Casa Berardi mine in the Canadian province of Quebec. The company’s exploration activity is centered on its Joanna gold project, along with its Fayolle and Marban properties, all in Quebec.
Gold production fell 9 percent to 31,976 ounces, largely due to a decrease in tonnes of ore milled. Even so, its results benefited from a 38 percent increase in the average realized gold price, which rose to $1,392 per ounce.
The company said it expects its operational and financial performance to strengthen, particularly in the second half of the year.
Aurizon now expects 2011 gold production to be at the lower end of its forecast range of 165.000 to 170,000 ounces.
Average cash costs per ounce are expected to be $525, up from a previous forecast of $495, mainly due to the continued strength of the Canadian dollar.
Shares of Aurizon were down 1 percent at C$5.43 Thursday morning on the Toronto Stock Exchange.
Mexico-focused Gammon said gold and silver output from its Ocampo mine rose in the quarter, while work has commenced on restarting operations at El Cubo. Operations at the mine had been halted for months due to a strike.
Halifax, Nova Scotia-based Gammon, which recently completed its $420 million takeover of Capital Gold, said it expects 2011 output of between 255,000 and 290,000 gold equivalent ounces. That compares with production of slightly over 200,000 ounces in 2010.
Gold production in 2011 is being boosted by output from the El Chanate mine in Northern Mexico. Gammon took ownership of the mine through its acquisition of Capital Gold, following an extended takeover battle with smaller rival Timmins Gold TMM.TO.
Net earnings in the first quarter rose to $19.3 million, or 14 cents a share. A year earlier, the company reported net income of $1.8 million, or 1 cent a share.
Earnings fell slightly shy of the average forecast of 16 cents a share.
Gammon shares were down 5.5 percent at C$8.53 Thursday morning on the Toronto Stock Exchange.
$1=$0.97 Canadian Reporting by Euan Rocha; editing by Frank McGurty and Rob Wilson