Investors punish Goldcorp after earnings miss analysts' estimates

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Shares in Goldcorp Inc. sank more than 18 per cent after the senior gold miner missed the Street’s estimates in the third quarter, cut its production forecast and predicted higher costs.

Canada’s second-biggest gold company by market value reported a net loss of $101-million, or 12 cents a share, for the quarter ended Sept. 30 compared with a profit of $111-million, or 13 cents, a year ago. On an adjusted basis, Goldcorp reported a loss of 8 cents, 5 cents lower than analysts estimated.

Third-quarter production came in weaker than expected, with output and grades falling sharply at its Cerro Negro mine in Argentina. Vancouver-based Goldcorp also struggled with gold recoveries at Penasquito in Mexico, one of its biggest mines. Production at its Musselwhite mine in Ontario and Pueblo Viejo in Dominican Republic, which it owns alongside Barrick Gold Corp., also fell more than expected.

Goldcorp said it expects to produce 2.28 million ounces of gold this year compared with its previous forecast in July of roughly 2.5 million ounces.

The company said its all-in sustaining cost (AISC), which measures all expenses incurred in producing an ounce of gold, will end up being US$850 an ounce for the year, US$50 an ounce higher than previously predicted.

Goldcorp’s shares closed down 18.4 per cent on the Toronto Stock Exchange at $11.09, down from levels above $18 early this year.

Chief executive officer David Garofalo found himself on the defensive during a conference call, with one investor accusing management of destroying shareholder value.

During the call, Peter Jacobs, chief investment strategist with U.S. investment firm Stifel RMG Group, lashed out at Goldcorp for its poor performance this year, and said that goals outlined earlier in January about intending to boost production, build reserves and lower costs have seemingly gone by the wayside.

“It just seems that everything's going backwards and you've failed to make any progress over the last three quarters, and I'm trying to think about the accountability on management, how shareholders are expected to understand it,” he said.

“It's almost as if it’s business as usual and it's another failed gold mining stock and company.”

In a rebuttal, Mr. Garofalo took a longer term view of the company’s performance and pointed out that despite production declines over the past few years, Goldcorp has made big improvements in efficiencies, lowered its cost base and spent its capital wisely.

“You talk about building long-term value for the shareholders,” Mr. Jacobs shot back. “Well you’ve destroyed 40 per cent of the value of the company over three quarters.”

In an e-mail to The Globe and Mail, Mr. Jacobs wouldn’t disclose the size of Stifel’s position in Goldcorp, but said that the firm started buying shares in January. “Shame on me for buying into their malarkey,” he wrote.

While admitting that Goldcorp had “underperformed” this year, Mr. Garofalo argued in the call that the steep decline in the company’s share price this year is also a function of weakness in the entire gold sector. He added that he is “very, very pleased” with his operating team’s performance.

Goldcorp also said that its proven and probable reserves – gold in the ground that can be mined profitably – fell about 1 per cent year-over-year to 52.8 million ounces. Replacing reserves has become a major concern among the world’s biggest gold miners with new discoveries becoming increasingly rare over time.

A number of analysts turned increasingly bearish on Goldcorp on Thursday, with Cormark Securities Inc. cutting its rating on Goldcorp from buy to market perform and slashing its target price to $16.50 from $23 a share.

On the same day that investors were digesting Goldcorp’s results, two other big Canadian miners, Barrick Gold Corp. and Agnico Eagle Mines Ltd., also reported third-quarter results. And while Barrick and Agnico stocks closed down by 3.5 per cent and 3 per cent, respectively, they handily beat the Street’s estimates.