Update Goldcorp (GG)

04/26/2012 2:58 pm EST


Jim Jubak

Founder and Editor, JubakPicks.com

Goldcorp (GG) reported first quarter 2012 earnings of 50 cents a share on April 25 after the close of New York markets. That was 5 cents a share below the Wall Street consensus. Revenue climbed 10.9% to $1.35 billion, below Wall Street expectations for revenue of $1.48 billion.

Do I need to tell you that the stock has tumbled on the news? As of 2:40 p.m. New York time on April 26 Goldcorp is down 6.5% to $38.39. (Goldcorp is a member of my Jubak’s Picks 12-18 month http://jubakpicks.com/ and Jubak Picks 50 long-term portfolios http://jubakpicks.com//  )

The problem seems to be focused on the company’s Red Lake mine. Goldcorp reported that had it encountered high-stress areas in the High Grade Zone at the mine. That limited access to ore slopes with higher ore grades. In addition the Footwall Zone at the Red Lake mine continues to be nuggetty. That’s another ore-grade problem since it requires the company to move more earth than if the gold was more evenly distributed. Between the two problems, Red Lake produced only 114,000 ounces of gold in the quarter (instead of Wall Street estimates of more than 150,000 ounces) and at a higher cash cost of $523 an ounce versus Wall Street projections of $350 or so an ounce.

Goldcorp’s CEO told Bloomberg yesterday that the ground problems at Red Lake probably aren’t very serious, although it is too early to tell for sure. The company will have a better idea of ore grades in the High Grade and Footwall zones at the end of the second quarter.

In January Goldcorp projected that it would produce 2.6 million ounces of gold in 2012 at costs of $550 to $600 an ounce. There is a good likelihood that Goldcorp can make up lost first quarter (and any potentially lost second quarter) production in the second half of 2012.

But the news out of Red Lake does make Goldcorp a second half of 2012 story. (Gold in general is a 2013 story, in my opinion. That’s when U.S. budget problems are likely to hit the fan. In other words Goldcorp is a long-term hedge that I’m looking to build at reasonable prices.) I’m keeping my target price of $55 a share but moving the date out to December 2012 from October 2011.

The company does still look like it is on schedule to increase gold production by 70% by 2016 as new mines in the Dominican Republic, Argentina, and Canada come on line. None of those projects have experienced significant delays, the company said yesterday.

Full disclosure: I don’t own shares of any of the companies mentioned in this post in my personal portfolio. The mutual fund I manage, Jubak Global Equity Fund http://jubakfund.com/ , may or may not now own positions in any stock mentioned in this post. The fund did own shares of Goldcorp as of the end of December. For a full list of the stocks in the fund as of the end of December see the fund’s portfolio at http://jubakfund.com/about-the-fund/holdings/
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