NEW YORK (
) -- Gold stock darling,
, lowered production guidance for 2011 and shares got punished, but CEO Chuck Jeannes says the problems are "well in hand."
Although the company beat second quarter estimates and made 52 cents a share, the gold miner, which had become accustomed to delivering blow-out quarters, lowered full year production guidance from 2.75 million ounces of gold on the high end to 2.55 million ounces.
Three factors led to this miss, two were natural disasters -- a forest fire at its Musselwhite mine in Canada which shut down production for a month and flooding at its Pueblo Viejo project in the Dominican Republic.
owns 40% of the project.
Natural disasters are common in the gold mining industry, but the third problem was what really shook Goldcorp -- production issues at its Penasquito mine in Mexico, one of the largest silver mines in the world. The mine will now only produce 250,000 ounces in 2011 instead of 350,000 onces as getting to the final throughput level, the amount of ore passed through the mill, is taking longer than Goldcorp anticipated.
"It was a combination of things that came together in the quarter," says Jeannes, who stands firm that these are short term issues. "We believe we will have this behind us by the end of the year ... we are three quarters in in about 90 quarters of commercial operations here so this is a very short term issue." Penasquito should be producing 130,000 tons a day in the first quarter of 2012, according to Jeannes.
The biggest impact this production miss has is on Goldcorp's cash costs. On a by-product basis, meaning counting silver sales towards producing an ounce of gold, the company has actually lowered costs to $180-$220 an ounce. But on a co-product basis costs are up by $50 to $550, on the top end. Because of the low throughput at Penasquito, Goldcorp isn't getting the benefit of as many low cost gold ounces as it had hoped.
Investors are skeptical. Shares of Goldcorp are down 10% in the last two weeks despite the fact that the
hit new records. Since earnings Wednesday after the closing bell shares are down 2%.
Jeannes is adamant that Goldcorp will still grow 60% by 2015, bringing 6 mines into operation in 5 years. "Our five-year plan, taking us to 4 million ounces in 2015, remains fully intact."
Analysts seem to agree but remain wary about the length of time it will take to get Penasquito back on track.
CIBC has a buy rating on the stock and wrote in a recent note that Goldcorp will be successful in fixing the issues at Penasquito but that it will take time, "investors will need to be patient with this name and we expect that it will take a while before there is good buying."
TD Newcrest has reduced its price target on shares to $68 from $70 and lowered its recommendation to buy from Action List Buy mainly because the stock won't have the same juice in the second half of 2011 that it did in the first. Goldcorp was a top gold stock in the first six months of the year up 7.15% outperforming the gold price, which was up just 6.22%, but those good returns will allude shareholders in the second half, according to the research firm.
Canaccord Genuity and Credit Suisse, both have buy ratings on the stock and both think the issues are manageable. "We believe this is a relatively minor stumble," wrote Credit Suisse.
Markets can be unforgiving, however. Gold miner,
, missed 2010 gold production by 1.2% and the stock got pummeled down more than 23% in 2011. This kind of punishment means the stakes are high for Goldcorp and Jeannes has to deliver his promise of success at Penasquito before 2012.
Written by Alix Steel in
>To contact the writer of this article, click here:
>To follow the writer on Twitter, go to
Disclosure: TheStreet's editorial policy prohibits staff editors and reporters from holding positions in any individual stocks.