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 were weaker largely because of a decision to move processing of lower-grade ore ahead by one quarter at the new Peñasquito pyrite leach plant.
The CEO spoke with Kitco News on Friday a day after shares of the company fell 18.7% in the aftermath of an earnings report that disappointed investors late Wednesday. The stock is up slightly late in Friday’s session, gaining 38 cents to $8.87 as of 2:07 p.m. EDT.
The company listed a net loss of $101 million, or 12 cents per share, a turnaround from a net profit 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-ago period, while all-in sustaining costs rose to $999 an ounce from $827 a year ago.
Garofalo explained that construction of the Peñasquito pyrite leach plant in Mexico was completed a quarter earlier than initially expected. As a result, Goldcorp moved ahead by one quarter the processing of a significant stockpile of low-grade material that had accumulated over the years.
“We chose to feed that material through the mill in the third quarter as we were commissioning the pyrite leach plant,” Garofalo said.
Had construction not been completed early, he continued, this material would have been fed through the plant in the fourth quarter instead.
“We had thought the fourth quarter was going to be our worst quarter for Peñasquito by design,” the CEO said. “Instead, because of the success on the construction side, we accelerated that low-grade material into the third quarter. And now we’re back to higher-grade material in the fourth quarter.”
In its earnings report, Goldcorp said it looks for fourth-quarter consolidated gold output to rise to approximately 620,000 ounces of gold, while AISC falls sharply from the third quarter to around $750 per ounce.
Garofalo said “obviously, we’re very disappointed with the share price performance” on Thursday.
“Nothing is broken,” he continued. “We’re steadily executing against our plans on our expansions. All of those expansions are on budget and are expected to significantly increase the production base….We’re getting to the end of that expansion program and are going to be at optimal levels by the second half of next year.
“While the performance in Q3 may seem disappointing relative to where consensus was, we’re right on plan for where we expect to be in the long term….”
Meanwhile, he explained, the Musselwhite operation in Canada is undergoing an improvement in the handling system, which should improve efficiency by some 20% by reducing hauling distances. Construction has gone well, but there was more waste than anticipated, which temporarily hurt production.
“But the gold is not 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’s mines are performing as expected, the CEO said.
“Our cost structure is 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 that compares very favorably to our peer senior producers.”
On another subject, Garofalo was upbeat on the prospects for the price of gold itself. Normally, he pointed out, gold has risen sharply during rate-tightening cycles.
“That might seem counterintuitive because if interest rates are going up, doesn’t that make sovereign debt a more attractive investment vehicle than gold?” he asked rhetorically. “But the reality is interest rates are going up because there is pressure in the system. The economy is at capacity and that means there is inflation. And after 10 years of quantitative easing, with all of that money supply in the system, inflation is inevitable.
“Generally, gold does well during the onset of tightening cycles because inflation is actually accelerating 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 also pointed out that there is a finite quantity of gold, which cannot be “printed.”
“I think the challenge for the industry is replacement of [declining] reserves, which only further supports the gold price.”