An industry leader in gold mining, Goldcorp (GG) is expected to report its third-quarter earnings on Oct. 25. Analysts forecast earnings of $0.10 per share, but a company's quarterly report transcends one figure. Let's prepare for the report by keying in on some things that management will likely address.
The yellow brick road to growth
Striving to increase annual gold production by 20% over the next five years, Goldcorp has several projects in its pipeline that will help the company meet its fiscal 2021 gold production target of 3 million ounces. Investors, therefore, will want to confirm that development of the projects remains on track in terms of both timing and budget.
Representing a capital cost of $420 million, the Pyrite Leach Project at Penasquito, for example, is expected to begin gold production in the fourth quarter of 2018 -- three months ahead of schedule. Besides an additional 100,000 to 140,000 ounces of annual gold production, the project is expected to contribute annual silver production of 4 million to 6 million ounces.
Another project the company will likely address is the Materials Handling Project at Musselwhite. Currently under construction, the project is expected to begin commercial production in first-quarter 2019 and will increase production at Musselwhite -- forecast to be 265,000 ounces for fiscal 2017 -- approximately 20%.
More of a good thing?
In addition to growing gold production 20% over the next five years, Goldcorp has targeted a 20% reduction in all-in sustaining costs (AISC). If successful, the company will lower its AISC from $856 per gold ounce in fiscal 2016 to $700 per gold ounce in fiscal 2021. According to management, Goldcorp's ability to recognize $250 million in annual sustained efficiencies by 2018 will play an integral role in helping the company to achieve the reduction in costs.
Currently, the company is right on track. During the second-quarter earnings presentation, management noted that it expects to identify $200 million of the $250 million target by the end of fiscal 2017. The sustainable efficiencies program -- which includes cost-reduction initiatives as well as volume or productivity increases -- is already benefiting the company, leading management to revise its fiscal 2017 AISC guidance from $850 per gold ounce to $825.
Based on the program's success to date, management believes that the efficiency target will likely be increased and extended beyond 2018. This is something investors will want to watch keenly, since management recognizes that improved cash flow is one of the hallmarks of the sustainable efficiencies program's success.
Making up for falling grades... and more
Although Penasquito is expected to report an approximate 12% year-over-year drop in annual gold production for fiscal 2017 due to the mining of declining grades in the second half of the year, management remains confident that it will achieve its overall gold production target of 2.5 million ounces. According to management, ramp-ups in production at Cerro Negro and Eleonore will help the company to achieve third-quarter gold production between 625,000 and 650,000 ounces.
In addition, it will be important to monitor Cerro Negro, since the core mine figures prominently in the company's five-year gold production growth plan. At the Argentine project, investors should confirm that the company is successfully developing the Marianas Norte and Emelia mines, which, when operational, will help Cerro Negro achieve nameplate production capacity of 4,000 metric tons per day. The throughput rate, currently, is approximately 3,000 metric tons per day.
Although Goldcorp has strung together several quarters of beating analysts' earnings estimates, savvy investors know that a miner's earnings per share is not where the golden nuggets of wisdom into the company's performance can be found. And for Goldcorp, specifically, investors should be more interested in how well the company is executing its annual sustained efficiencies program. Should Goldcorp excel at streamlining its operations, there could be a strong improvement in the company's cash flow. This, in turn, could go a long way in helping the company to develop the numerous projects in its pipeline without having to sacrifice its balance sheet and resort to burying itself in debt.