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3 Key Takeaways From Goldcorp's Q4 Earnings

By Scott Levine - Mar 8, 2017 at 5:19PM

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Can investors enjoy golden slumbers after reviewing this earnings report?

Recently releasing its fourth-quarter earnings, Goldcorp (GG), a leader among gold-mining companies, reported net earnings of $101 million -- a considerable improvement over the $4.3 billion net loss it reported during the same period last year. But there's much more to a company's quarterly performance than just one number, so let's grab our shovels and mine the report for some of the more interesting nuggets.

Keeping costs down

Dealing in a commodity, Goldcorp is unable to arbitrarily raise prices whenever it sees fit; consequently, it's imperative for the company to reign in expenses if it wants to see growth on the bottom line. And in the fourth quarter, that's exactly what the company did. Reporting all-in sustaining costs (AISC) of $747 per gold ounce, Goldcorp achieved a 24% reduction compared to the $977 it reported during the same period last year. According to management, lower production costs and the strengthening of the U.S. dollar against foreign currency contributed largely to the improvement.

A businesswoman holds a magnifying glass over a financial document.

Image source: Getty Images.

Although the reduction could have been even greater had it not been for lower sales volumes at Cerro Negro, Los Filos, and Eleonore, the company's Q4 improvement was enough to help the company lower its AISC from $894 in fiscal 2015 to $856 per gold ounce for fiscal 2016.

Reporting AISC at the lower end of its annual AISC guidance -- $850 to $925 per gold ounce -- Goldcorp expects the improvement to continue into fiscal 2017; management forecasts AISC to total $808 to $893 per gold ounce.

Digging into production

Although the fourth quarter began inauspiciously -- Penasquito's operations were suspended due to an illegal blockade -- the company resumed operations early in the quarter, resulting in a minimal impact to gold production. In fact, during the fourth quarter, Penasquito's gold production was 8% higher than the same period last year thanks to the mining of higher-grade ore.

Goldcorp, in all, produced 761,000 ounces of gold in the fourth quarter, which translated to the company achieving its fiscal 2016 guidance. Falling at the lower end of its forecast of 2.8 million to 3.1 million gold ounces, the company's production totaled 2.87 million ounces of gold. 

At first glance, one may surmise Goldcorp is moving in the wrong direction since gold production in fiscal 2016 was 17% lower than the 3.46 million ounces the company produced in 2015, but this would be shortsighted. The company recently announced a five-year growth plan, which entails growing production by 20% -- to more than 3 million ounces in fiscal 2021 -- while reducing its AISC by 20%.

Mining the balance sheet

Working to strengthen its financial position, Goldcorp repaid $169 million in Argentine debt during the fourth quarter. This represented the majority of the $180 million in debt that the company repaid through fiscal 2016, resulting in the company ending the year with approximately 11% less long-term debt than it had at the end of fiscal 2015.

Before the company receives praise for shoring up its balance sheet, it bears noting that the reduction was only in long-term debt. Because Goldcorp ended fiscal 2016 with a smaller cash position -- only $200 million compared to the $383 million at the end of fiscal 2015 -- the company actually ended the year with slightly more net debt: $2.310 billion compared to the $2.305 billion at the end of fiscal 2015.

As a result of its repayment of various loans in fiscal 2016, Goldcorp has no debt repayable until March 2018, when $500 million is due.

Investor takeaway

A reduction in AISC and the achievement of its gold production guidance are two simple reasons Goldcorp could consider fiscal 2016 a success. Moving forward, though, investors could monitor the company's progress in executing its five-year plan to increase net asset value: increasing gold production by 20%, reducing AISC by 20%, and increasing reserves by 20%.

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