Does Goldcorp’s 2019 Guidance Outweigh Mixed Q4 Earnings?

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Goldcorp (TSX: [stock_market_widget type=”inline” template=”generic” color=”default” assets=”G.TO” markup=”{symbol} {currency_symbol}{price} ({change_pct})” api=”yf”]) recently released its results for the fourth quarter of fiscal 2018 which were mixed at best. Though the miner beat consensus estimates on earnings, its revenue lagged expectations by a big margin. Additionally, Goldcorp’s top and bottom lines shrunk on a year over year basis as it prepares to get acquired by Newmont Mining (NYSE: NEM) in the second quarter of the year.

Goldcorp delivered $772 million in revenue during the quarter, which missed the consensus estimate by a wide margin of $61 million.

Goldcorp delivered $772 million in revenue during the quarter, which missed the consensus estimate by a wide margin of $61 million and resulted in a 9.5% decrease in the top line on a year over year basis. The company’s non-GAAP earnings of $61 million, or $0.07 per share, beat analysts’ estimates of $0.03 per share. However, they were also down significantly from $116 million, or $0.14 per share, in the year-ago period.

Let’s take a closer look at how Goldcorp performed last quarter and what lies ahead.

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Goldcorp Shows a Strong Operating Performance

Goldcorp produced 630,000 ounces of gold during the fourth quarter at all-in sustaining costs of $765 per ounce. The company had produced 646,000 ounces of gold during the same quarter last year, but at a much higher all-in sustaining cost of $870 an ounce. Its cash costs stood at $548 per ounce for the quarter as compared to $499 an ounce in the prior-year period.

The company had to incur a non-cash impairment charge of $3.88 billion during the quarter on account of the difference between the book value of its own shareholder equity and the offer from Newmont. As a result, Goldcorp swung to a net loss of $4.1 billion during the quarter from a profit of $658 million in the year-ago period.

The Vancouver-based company also provided an update on the milestones that it achieved last quarter. Goldcorp’s Peñasquito’s Pyrite Leach Project started commercial gold production in December last year following the first gold pour at the site in November. The Borden Project at Porcupine is expected to start commercial production in the second half of 2019, while the Coffee Project is now in the late stages of permitting and engineering.

Additionally, Goldcorp has completed the ramp-up of its operations at Cerro Negro and Éléonore, with the latter producing 35,000 ounces of gold per month, putting it in line with the targeted annual gold production of 400,000 ounces at the mine.

Production and Cost Guidance Bodes Well for Stock Price

Goldcorp’s ramp-ups and mine developments are expected to help the company maintain its production at 2018 levels this year, albeit at a lower cost base.

Goldcorp’s ramp-ups and mine developments are expected to help the company maintain its production at 2018 levels this year, albeit at a lower cost base. Goldcorp’s guidance suggests that it will produce 2.3 million ounces of gold in 2019, nearly flat from last year.

All-in sustaining costs are expected between $750 and $850 an ounce, while cash costs are expected to fall in the range of $400 and $500 an ounce. This compares favourably to 2018’s cash costs of $548 per ounce and all-in sustaining costs of $851 an ounce.

The improved cost profile bodes well for Newmont as it is set to close the acquisition of Goldcorp next quarter. The Boards of Directors of both companies have already approved the transaction, which is expected to deliver $100 million worth of pre-tax synergies annually and create a mining giant capable of producing 6-7 million ounces of gold every year.

Harsh Singh Chauhan has a wealth of experience evaluating publicly-traded companies across several verticals, including technology, oil and gas, retail, and consumer goods. His financial writing has been published across platforms such as The Motley Fool, TheStreet, and Seeking Alpha. Harsh's philosophy is to find great businesses for the long run based on company fundamentals and industry prospects. Address: 682 Indian Road, Toronto, Ontario, M6P 2C9. Phone: 416-721-8257.

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