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Does Goldcorp Still Glitter?

It certainly is hit or miss with earnings from gold companies lately, which reflects the wide range of issues challenging miners of all kinds. Between the equipment backlogs, labor strikes, currency woes, financing constraints, geopolitical tensions, accidents, power shortages, and rising input costs … it's a wonder anything ever makes it out of the ground.

With these formidable challenges in mind, I tend to be forgiving when an otherwise solid miner falls prey to one or two of these external factors -- provided the fundamental outlook remains unaltered. Already this earnings season, my Foolish colleague David Lee Smith absolved Freeport-McMoRan (NYSE: FCX  ) for an earnings decrease on mine sequencing issues, while I pardoned Agnico-Eagle (NYSE: AEM  ) for weak results on softer zinc prices. For gliding through this tough earnings quarter, Newmont Mining (NYSE: NEM  ) continues to look attractive.

On the heels of a solid first quarter, Goldcorp (NYSE: GG  ) swung to a $9.2 million loss for the second quarter from a profit of $2.9 million in the prior year. On an adjusted basis, the company earned $0.12 per share, which is 45% below what analysts were expecting. As with its corporate offspring Silver Wheaton (NYSE: SLW  ) , Goldcorp's second quarter was substantially marred by a non-cash tax-related hit; in this case a whopping $98.4 million foreign exchange loss on the revaluation of future tax liabilities. The charge is large enough to give this Fool pause.

Based on Goldcorp's operational updates, I believe the production shortfall experienced in the second quarter will have only a near-term impact on the company's growth. While Goldcorp lowered 2008 guidance from 2.6 million ounces to 2.3 million ounces, and raised projected costs from $250 per ounce to below $300, the important thing is that the broader objective of 50% growth over the next five years remains intact.

Ending on a positive note, Goldcorp kept the mining mergers and acquisitions fire burning by announcing a $1.5 billion friendly bid to acquire junior exploration company Gold Eagle Mines. Gold Eagle had been the target of a strategic acquisition of shares by Agnico- Eagle in June, and the move likely spurred Goldcorp into action. With a promising gold property near Goldcorp's flagship Red Lake mine in Ontario, the purchase would make a lot of sense for Goldcorp.

Further Foolishness:

The Gold tag within the Foolish universe of Motley Fool CAPS lists 85 companies. Join the CAPS community to separate the Fools' picks from fool's gold. It's free and fun!

Fool contributor Christopher Barker captains yachts and writes about stocks. He can also be found blogging actively and acting Foolishly in CAPS under the username TMFSinchiruna. He owns shares of Agnico-Eagle, Freeport-McMoRan, and Silver Wheaton. The Motley Fool has a disclosure policy.

Read/Post Comments (2) | Recommend This Article (12)

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Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On July 31, 2008, at 4:52 PM, donncanzano wrote:

    claude resources, crg, has a property adjacent to goldcorp in the same area. is it a takeover candidate?

  • Report this Comment On August 02, 2008, at 11:40 AM, XMFSinchiruna wrote:

    All juniors are takeover candidates. :) I own Claude as well.

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