TORONTO (Reuters) - Profit at Agnico-Eagle Mines (AEM.TO) dropped by a steeper than expected 78 percent in the second quarter, the company said on Wednesday, as it also cut its 2008 gold output forecast and warned of a 40 percent jump in capital costs.
The Canadian gold producer earned $8.3 million, or 6 cents a share, in the quarter ended June 30. That was down from $37.8 million, or 28 cents a share, in the year-before period, as the company’s bottom line was stung by a 56 percent year-on-year drop in zinc prices.
Stripping out one-time items, core earnings were 9 cents a share, which fell short of the profit of 17 cents a share expected by analysts.
“It’s certainly below my expectations and the street‘s,” said Barry Allan, an analyst at Research Capital in Toronto.
“I know the street’s not going to greet it well.”
Payable gold production rose to 59,452 ounces at total cash costs of $113 an ounce, compared with 56,392 ounces a year earlier at cash costs of negative $699 an ounce, as the company recorded its zinc production as an offset to its gold mining costs.
However, the year-on-year fall in zinc prices, combined with lower zinc production, led to higher costs per ounce and the profit decline in the most recent quarter.
Realized gold prices were $804 an ounce, up from $683 an ounce in the year-before period.
The company produces from its La Ronde mine in Quebec, and began production this year from its neighboring Goldex mine. Agnico also plans to open the Kittila mine in Finland this year.
Agnico said the production ramp-up at Goldex had been slower than expected, prompting it to cut its 2008 gold production forecast to a range of 300,000 to 320,000 ounces from 360,000 ounces.
It also said capital costs over the next two years could be about 40 percent above its previous estimate of $880 million, due to exchange rates and general cost inflation. This would bring its cost estimate to more than $1.2 billion.
The company said it will release more details on costs and expected mine life in the fourth quarter.
Agnico also said it looking at squeezing additional production growth from its assets.
The company’s shares, which have risen 19 percent so far this year, fell 5.6 percent to C$64.80 on the Toronto Stock Exchange on Wednesday due to weaker gold prices , which retreated nearly 3 percent to a two-week low around $920 an ounce on Wednesday.
The results were released after markets closed.
Reporting by Cameron French; editing by Rob Wilson