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Goldcorp Inc. (G-T) reported a slim increase in its operating profit on Wednesday, as its most prolific mine was hit by operational problems that reduced output and offset most of the gains from a surge in bullion prices.
Vancouver-based Goldcorp said adverse ground conditions at the Red Lake mine in northern Ontario delayed the development of certain areas in the mine's high-grade zone. That, together with lower grades in certain other areas of the mine, led to a slow start to 2012.
The issues led to an 18-percent drop in Goldcorp's quarterly gold output and threw the miner's full-year production forecast into question.
"We were clearly a bit disappointed with the production performance, I feel like we left an opportunity on the table," said chief executive Chuck Jeannes. "Overall I was happy that we saw increased earnings, increased revenues and increased cash flows quarter-on-quarter, but it could have been better."
Jeannes said output has begun to pick-up at Red Lake, but the company is now conducting a review to see whether it can make up the first-quarter shortfall over the rest of the year.
"We can certainly work around the issues. We don't have a concern about the long term future of Red Lake, but whether we can make up those ounces this year will be determined."
Canada's No. 2 gold miner said that for now it is sticking by its 2012 gold production forecast of 2.6 million ounces at total cash costs of $250 US to $275 per ounce of gold on a by-product basis.
The company said it is analyzing whether the first-quarter setback at Red Lake will impact its overall 2012 production and cash costs.
Excluding an impairment charge related to certain equity investments and other one-time items, first-quarter earnings rose to $404 million, or 50 cents a share, from a year-earlier profit of $392 million, or 49 cents.
Analysts, on average, had forecast earnings of 54 cents a share, according to Thomson Reuters I/B/E/S.
Net earnings dropped to $479 million, or 51 cents a share, from $651 million, or 81 cents, a year earlier.
The company sold 545,700 ounces of gold in the quarter on production of 524,700 ounces. That compared with sales of 627,300 ounces on production of 637,600 ounces in the same period last year.
Gold output at Red Lake fell to 114,200 ounces from 186,100 ounces. The output decline also hurt average production costs at the site, which rose to $523 an ounce from $322 an ounce, on a by-product basis.
On that basis, Goldcorp's overall production costs in the quarter spiked to $251 an ounce from $188 an ounce.
Quarterly revenues rose to $1.35 billion from $1.22 billion, on the back of a 22 percent increase in the average realized gold price.
Jeannes said Goldcorp's project development work is running on schedule, and the Pueblo Viejo project in the Dominican Republic is expected to begin initial production in mid 2012. The project is being developed in partnership with the world's top gold miner, Barrick Gold.