Goldcorp CEO: 'Nothing Is Broken' Despite Plunge In Shares
(Kitco News) - David Garofalo,president and chief executive officer of Goldcorp Inc. (TSX: G, NYSE: GG), says“nothing is broken” with the company and that third-quarter earnings wereweaker largely because of a decision to move processing of lower-grade oreahead by one quarter at the new Pe??asquito pyrite leach plant.
The CEO spoke withKitco News on Friday a day after shares of the company fell 18.7% in theaftermath of an earnings report that disappointed investors late Wednesday. Thestock is up slightly late in Friday’s session, gaining 38 cents to $8.87 as of2:07 p.m. EDT.
The company listeda net loss of $101 million, or 12 cents per share, a turnaround from a netprofit of $111 million, or 13 cents, in the same period a year ago.Consolidated production fell to 503,000 ounces from 633,000 in the year-agoperiod, while all-in sustaining costs rose to $999 an ounce from $827 a yearago.
Garofalo explainedthat construction of the Pe??asquito pyrite leach plant in Mexico was completeda quarter earlier than initially expected. As a result, Goldcorp moved ahead byone quarter the processing of a significant stockpile of low-grade materialthat had accumulated over the years.
“We chose to feedthat material through the mill in the third quarter as we were commissioningthe pyrite leach plant,” Garofalo said.
Had construction notbeen completed early, he continued, this material would have been fed throughthe plant in the fourth quarter instead.
“We had thought thefourth quarter was going to be our worst quarter for Pe??asquito by design,” theCEO said. “Instead, because of the success on the construction side, weaccelerated that low-grade material into the third quarter. And now we’re backto higher-grade material in the fourth quarter.”
In its earningsreport, Goldcorp said it looks for fourth-quarter consolidated gold output torise to approximately 620,000 ounces of gold, while AISC falls sharply from thethird quarter to around $750 per ounce.
Garofalo said“obviously, we’re very disappointed with the share price performance” onThursday.
“Nothing isbroken,” he continued. “We’re steadily executing against our plans on ourexpansions. All of those expansions are on budget and are expected tosignificantly increase the production base....We’re getting to the end of thatexpansion program and are going to be at optimal levels by the second half ofnext year.
“While theperformance in Q3 may seem disappointing relative to where consensus was, we’reright on plan for where we expect to be in the long term....”
Meanwhile, heexplained, the Musselwhite operation in Canada is undergoing an improvement inthe handling system, which should improve efficiency by some 20% by reducinghauling distances. Construction has gone well, but there was more waste thananticipated, which temporarily hurt production.
“But the gold isnot lost,” Garofalo said, later adding, “The gold will come out in due course.We’re having a delay getting up to capacity.”
Most of Goldcorp’smines are performing as expected, the CEO said.
“Our cost structureis still very, very competitive,” he said. “We’re still expecting to [produce]gold at all-in sustaining costs for the full year of $850 an ounce, and thatcompares very favorably to our peer senior producers.”
On another subject,Garofalo was upbeat on the prospects for the price of gold itself. Normally, hepointed out, gold has risen sharply during rate-tightening cycles.
“That might seemcounterintuitive because if interest rates are going up, doesn’t that makesovereign debt a more attractive investment vehicle than gold?” he askedrhetorically. “But the reality is interest rates are going up because there ispressure in the system. The economy is at capacity and that means there isinflation. And after 10 years of quantitative easing, with all of that moneysupply in the system, inflation is inevitable.
“Generally, golddoes well during the onset of tightening cycles because inflation is actuallyaccelerating more quickly than nominal interest rates are. So on a real basis,interest rates are flat to down. That makes gold attractive as a currency.”
Meanwhile, he alsopointed out that there is a finite quantity of gold, which cannot be “printed.”
“I think thechallenge for the industry is replacement of [declining] reserves, which onlyfurther supports the gold price.”
By Allen SykoraFor Kitco News
Follow @AllenSykora
asykora@kitco.com Disclaimer: The views expressed in this article are those of the author and may not reflect those of Kitco Metals Inc. The author has made every effort to ensure accuracy of information provided; however, neither Kitco Metals Inc. nor the author can guarantee such accuracy. This article is strictly for informational purposes only. It is not a solicitation to make any exchange in commodities, securities or other financial instruments. Kitco Metals Inc. and the author of this article do not accept culpability for losses and/ or damages arising from the use of this publication.  |