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GG Earnings Preview

Heading into earnings for the myriad miners of silver and gold, another sharp retreat by the notoriously volatile industry raises the prospect once more for savvy Fools to identify some unmistakable bargains in this long-term bull market.

I have called Goldcorp's (NYSE: GG  ) stock a considerable bargain anywhere beneath $50 per share, and I stand by that long-term assessment despite a set of specific challenges that have affected recent price performance. Goldcorp shares shed more than 2% Wednesday on the eve of that company's third-quarter report, during a day that saw gold dropping to test price support at $1,700 per ounce. Because this well-respected miner has run into its share of near-term operational snags in recent months, it seems a timely opportunity to discuss the sorts of items to be watchful for in Thursday's report.

First and foremost, Fools will wish to remain alert for any updates regarding the Red Lake operation. Goldcorp was forced to reduce guidance from its flagship operation back in July after encountering a combination of "seismicity" concerns that slowed efforts to conduct "de-stressing" work in the surrounding rock to ensure a safe work environment. That de-stressing work has since been completed, but evaluation of the potential for similar issues to recur is ongoing. As we learned through Agnico-Eagle Mines' (NYSE: AEM  ) geotechnical challenges at the Goldex mine, these matters require careful analysis before a conclusive determination can be made.

Also impacting Red Lake's output, Goldcorp found that portions of the mine's Footwall Zone were showing ore grades beneath those anticipated, and any further insight into the scope of that new development will be key to gauging whether and when the operation will be able to return to previously anticipated production levels. I don't expect too much clarity to emerge from this earnings report, since the company has indicated it would spend "the remainder of 2012" evaluating these developments, but that doesn't mean Foolish investors can't remain watchful for any clues they may wish to provide.

What I think Fools will find as they scrutinize Goldcorp's results are the hallmark signs of a quality mine operator that's swift in responding to the periodic challenges that are utterly inherent to commercial-scale mining activity. The revised production guidance issued after the second quarter is likely to hold, and I suspect the company will be well on the way toward accessing fresh water supplies at Peñasquito after that region's drought drained 11% from the company's initial estimate for 2012 output from the mine. Investors with positions or interest in Silver Wheaton (NYSE: SLW  ) or Royal Gold (Nasdaq: RGLD  ) will likewise wish to take note, as both companies are beneficiaries of full-capacity production at Peñasquito. A cozy realized gain on the sale of some shares of Primero Mining (NYSE: PPP  ) will likely be spread across the third and fourth quarters, further enhancing the company's enviable financial strength.

I'll be watching for those updates and much, much more as Goldcorp reveals its third-quarter earnings, and I invite investors to stay tuned for my post-earnings analysis by bookmarking my article list or following me on Twitter.

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Fool contributor Christopher Barker owns shares of Goldcorp, Primero Mining, and Silver Wheaton. The Motley Fool owns shares of Primero Mining. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

Read/Post Comments (2) | Recommend This Article (7)

Comments from our Foolish Readers

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 October 25, 2012, at 7:07 AM, EllenBrandtPhD wrote:

    I'm glad GG was faux-slaughtered the past two days, because it shows the Gold Shorts in general are now in Desperation territory.

    AEM had very good results. GG should, too - cross fingers. Report is after the Bell, usually about 7 PM.

    Also note that the Silver Summit begins today in Spokane, with Eric Sprott as the main keynote speaker for, I believe, the first time.

    For the nine or ten people who have been totally asleep the past year, Eric Sprott's favorite is CDE. But he has significant positions in a multitude of other XAU, HUI, and GDXJ components and will probably talk them up as well.

  • Report this Comment On October 28, 2012, at 6:35 AM, skypilot2005 wrote:

    Goldcorp achieves record revenues in the third quarter


    "reported record quarterly revenues of $1.5 billion, generating adjusted net earnings1 of $441 million, or $0.54 per share, compared to $450 million, or $0.56 per share, in the third quarter of 2011. Reported net earnings were $498 million compared to $336 million in the third quarter of 2011. Operating cash flow before working capital changes was $687 million.

    Third Quarter 2012 Highlights

    • Gold production totaled 592,500 ounces, with gold sales of 617,800 ounces.

    • Cash costs3 totaled $220 per ounce on a by-product basis and $660 per ounce on a co-product basis.

    • Operating cash flow before working capital changes totaled $687 million or $0.85 per share.

    • Adjusted net earnings were $441 million, or $0.54 per share.

    • Dividends paid amounted to $109 million.

    • Quarter-end cash balance of $894 million; net cash position of $32 million4.

    • First gold poured at Pueblo Viejo.

    • Added to the Dow Jones Sustainability Index North America.

    "Operating improvements at Red Lake and Peñasquito contributed to strong financial results in the third quarter," said Chuck Jeannes, Goldcorp President and Chief Executive Officer. "Our priority is on continuing work to maximize the strong potential at our two largest operations. At Red Lake, access to several stopes in the High Grade Zone following the completion of de-stressing work is leading to stronger gold production in the second half of the year while an important new discovery adjacent to the High Grade Zone supports the potential for greater future production flexibility at this prolific mine. At Peñasquito, water availability remains sufficient to achieve 2012 guidance, and a study is underway to develop a long-term water strategy to meet the needs of both Peñasquito and emerging development opportunities in the Peñasquito district."


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