Seeking Alpha
We cover over 5K calls/quarter
Profile| Send Message| ()  

Executives

Jeff Wilhoit – Vice President, Investor Relations

Charles A. Jeannes – President and Chief Executive Officer

George R. Burns – Executive Vice President and Chief Operating Officer

Lindsay Hall – Executive Vice President and Chief Financial Officer

Analysts

Brian Yu – Citigroup

John Timothos – John Tumazos Very Independent Research

David Haughton – BMO Capital Markets

George Topping – Stifel Nicolaus

Jorge Mariano Beristain – Deutsche Bank

Steven Walker – RBC Capital Markets

Greg Barnes – TD Securities

Anita Soni – Credit Suisse

Paretosh Misra – Morgan Stanley

Goldcorp Inc. (GG) Q1 2013 Earnings Call May 2, 2013 1:00 PM ET

Operator

Good morning, ladies and gentlemen. Welcome to the Goldcorp Incorporated 2013 First Quarter Conference Call for Thursday, May 2, 2013. Please be advised that this call is being recorded.

I would now like to turn the meeting over to Mr. Jeff Wilhoit, Vice President, Investor Relations of Goldcorp. Please go ahead, Mr. Wilhoit.

Jeff Wilhoit

Thank you, and welcome everyone to the Goldcorp first quarter conference call. Among the senior management in the room with me today are Chuck Jeannes, President and Chief Executive Officer; Lindsay Hall, Chief Financial Officer; and George Burns, Chief Operating Officer.

For those of you on the webcast, we have included a number of slides to support this afternoon’s discussion. These slides are available on our website at www.goldcorp.com. As a reminder, we will be discussing forward-looking information that involves unique risks concerning the business, operations, and financial performance and condition of Goldcorp. Forward-looking statements include, but are not limited to, statements with respect to future metal prices, the estimation of mineral reserves and resources, the timing and amount of estimated future production, cost of production, capital expenditures, and cost and timing of the development of new deposits.

Forward-looking statements are subject to known and unknown risks, uncertainties, and other factors that may cause the actual results to be materially different from those expressed or implied by such forward-looking statements. Accordingly, you should not place undue reliance on forward-looking statements.

With that, I will now turn the call over to Chuck Jeannes.

Charles A. Jeannes

Thanks, Jeff, and thanks everyone for joining us today. We are talking to you from Toronto where our management team and Board of Directors are gathered for our Annual General meeting to be held shortly after we do this call.

We were pleased to begin 2013 on a positive note with gold production of 614,600 ounces in line with our expectations on track towards our production and cost guidance for the year. Revenues totalled about $1 billion with strong adjusted operating cash flow of $400 million. I recognized that our earnings were below consensus estimates for the quarter.

As I said, we’re very comfortable with our guidance for the year, but we don’t provide quarterly guidance, and it’s clear that the quarter-to-quarter grade fluctuations, primarily around grade at Peñasquito can be hard for the market to anticipate. Mr. George will discuss the grade profile of Penasquito to give a little more insight into how the year will in full, significant, new subsequent for the end of the first quarter was the drop in gold prices in mid-April.

So I want to spend a moment to address recent market dynamics and what lower metals prices may mean for the company. I believe what we’re seeing as a mid-cycle correction as opposed to a start of a bare market. And indeed the gold prices recaptured more than half of the $200 drop, were driven by significant physical buying and continued central bank [demand].

I believe that the factors that have supported gold a run up over the past 12 years remain prudently in place. Within any successful long-term strategy, we need to be able to address market volatility. At Goldcorp, we started with the review of our liquidity. Our balance sheet is in great shape with over $2 billion in cash and over $4 billion in available liquidity.

Our conservativism over the past years and how we financed our growth today provides us excellent flexibility in weathering lower gold prices. That flexibility means that we are not going to undertake major reactions to a short-term price move. That we run sensitivities as we always do, we are looking at spending priorities; determine where we would make reductions or deferrals in our spending programs in the event of a lower sustained price.

We will continue to focus on our ongoing cost management initiatives, we see cautiously with respect to new capital visit. But our plans for the three growth projects under construction remain firmly in place. Total spending on Cerro Negro, Cochenour and Éléonore are now about 60% complete. And once in production, all three will bring high quality low cost production that will reduce our overall cost profile, that’s bringing down all in costs. These are projects that any prudent company would continue to build in this environment and we’re fortunate to have the employees to deliver value for our shareholders.

Covering a few first quarter highlights, solid production drove revenues of $1 billion with operating cash flow $400 million and adjusted net earnings of $253 million. Beginning of the year, we increased the dividend again, $0.60 per share and we remain comfortable with our current dividend pay-out.

We also added $1.5 billion in liquidity through the offering of five-year and ten-year unsecured notes at very attractive rates, demonstrating the financial strength of the company. Our total liquidity is now over $4 billion and our balance sheet leverage remains very conservative. Early in the year, but it’s important to confirm that we’re on track to meet our production guidance of between 2.55 million ounces to 2.8 million ounces this year with all in sustaining cost between $1,000 and $1,100.

As stated in our January guidance release and again in our earnings release in February, our performance is weighted more heavily to the second half of the year. We’re maintaining our capital expenditure guidance of $2.8 billion and our exploration spend of $225 million also remains unchanged at this time. Regarding our cost guidance, we do expect cost to be higher this year than last due mostly to being in planned low-grade cycles of both Peñasquito and Alumbrera for most of the year. Those are temporary conditions.

We fully expect our operating cost to improve significantly 2014 and for the rest of the five year plan. Over the longer term, our outstanding five year growth profile remains intact. Peñasquito and Pueblo Viejo will continue to contribute increasingly and new production from Cerro Negro, Éléonore and Cochenour will drive the 70% growth over the next five years. All the projects are advancing well through high quality assets that will deliver significant value to our company and our shareholders.

And then beyond 2017, we have a number of advanced exploration projects including Camino Rojo near Peñasquito with the potential to become our next new growth projects. As I turn the call over to George for a review of the operations, I want to recognize the significant continued improvement of Red Lake where we’ve seen three consecutive quarters of very strong performance, and George over to you.

George R. Burns

Thanks, Chuck. Gold production in the first quarter totaled 614,600 ounces with Red Lake leading the way with production of 145,500 ounces. I’m happy with performance at mines which was as we expected and I’ll explain these results are expected to improve significantly over the year.

At Red Lake, following the completion of the destressing work last year, we continue to have higher and greater flexibility in terms of stope availability, mine headings in the high grade zone. A single destressed slot is expected to be completed later this year with only about 5,000 ounces of 2013 production on its completion. We are off to a strong start at Red Lake.

We have reaffirmed the production guidance of between 475,000 and 510,000 ounces. Exploration drilling continues on the newly discovered NXT zone which is adjacent to the High Grade Zone. The results indicate the zone remains open to the west and vertically. We have drills targeting this zone both from the 4199 exploration drift and from existing infrastructure at higher levels in the mine. Exploration development continues on the 47 level to provide closer drill access to this zone.

At Peñasquito first quarter gold production totalled 60,100 ounces at a total cash cost of $611 per ounce. As expected, production decreased from the fourth quarter of 2012, as we were mining in the lower grade portion of the pit, which decreased our average grade from 0.55 gram per ton to 0.31 gram per ton.

We’ll begin to mine higher grade in this new phase of the pit as the year progresses, with the result being increased gold production at declining cash cost. To give you a sense of the grade variability, we expect to see an increase throughout the year to approximately 0.6 grams per ton in the last quarter. Gold throughput in the quarter average to 103,660 tons per day remains on track to average 105,000 tons per day 2013, resulting in expected production of between 360,000 to 400,000 ounces for the year.

Regarding the water supply at Peñasquito we are on schedule to complete the water and tailings studies in the first half of 2013. Studies are evaluating the development of new water sources as well as opportunities to reduce water consumption. I am happy to report that new water source has been identified within our current permitted basin with the potential to supply sufficient fresh water to continue ramp-up to full design capacity. On the longer-term, studies assessing the potential to source treated effluent water from the municipality of (inaudible) to help meet water demand both at Peñasquito and the potential new mining operations including Camino Rojo.

The completed study is also expected to enable a decision on whether to perceive with the detailed feasibility study investigating the possibility of expanding and/or reconfiguring the existing tailings facility, in order to enhance water usage efficiency over the life of mine.

At Camino Rojo, we are pleased to conclude negotiations and expand an agreement with Ejido San Tiburcio covering 2,500 hectares of land providing us with long-term surface rights, as well a five-year exploration agreement were also signed that provides permission to explore and drill on another 2,500 hectares of land. Exploration drilling is now resumed with six drills onsite performing infield growing of the West Extension. The bulk of the corp in these holes has been dedicated to metallurgical testing with sulfide and transition zones in the West Extension.

During the second quarter, we’ll accelerate drilling of the West Extension with four additional drill rights. During the first quarter, our newest producing mine Pueblo Viejo produce 64,700 ounce of gold. The ramp up is progressing well towards full capacity in the second half of this year. The government of the Dominican Republic has asked Barrick on behalf of the Pueblo Viejo joint venture to accelerate and increase benefits that the government will derive from the mine. Barrick continues to engage in dialog with the government in an effort to achieve mutually acceptable outcomes.

At Cerro Negro in Argentina, outstanding progress has been made on surface construction as well as ramp up of the underground. The Eureka decline has now advanced to over 2300 meters and the first drill production has commenced with the completion of the first (inaudible).

The ore stockpile from Eureka now contains about 51,000 tons with expected grades of 11.7 gram per tonne and 220 gram per tonne of silver. Ramp development in the Mariana Central, Mariana Norte veins is also progressing on schedule. We expect to see ore production from Mariana Central in the second quarter from Mariana Norte in the third quarter.

Detailed engineering is now at 92% of completion. Total EPCM is approximately 62%. The team is focused on meeting its schedule for first production late this year. However, we received the permit to commence construction of the power line that will buy into the grid later than expected. This delay could result in the first gold production being deferred into the first quarter of 2014.

Here you can see the mill structure, which is taking shape quickly. At Éléonore (inaudible) activity continues to accelerate. The Gaumond’s exploration staff conversion from sinking to operating mode was completed, which has enabled mine development from the 650 meter level and the acceleration of diamond drilling activities at depth. The production staff has now reached a depth of 220 meters.

The exploration ramp is now extended over 2,900 meters. The exploration of this quarter focused on in-fill drilling, the upper mine area, as will a total of 18,884 meters of diamond drilling was completed first strategic working platforms in the exploration ramp. Currently six drills are conducting definition and exploration drilling. Drilling has also begun on the lower portion of the mine. Here you can see a significant progress in construction of the mill building and its related infrastructure.

Progress at Cochenour in the Red Lake district continues to progress. The haulage drift is now 71% complete with final completion expected by the end of this year. Two drills continue to work in the haulage drift to test the potential of the underexplored area above and below the drift. Underground exploration diamond drilling of the Bruce Channel Deposit will commence in the third quarter once the haulage drift is close enough and drilling platforms are excavated.

With that, I will turn it over to Lindsay for a financial review.

Lindsay Hall

Thanks George. Turning to the results of the quarter, I am really pleased with the financial performance of operating mines, financial disciplines we’re exhibiting around, building up our new mines. Before I get into the numbers, as we have previously mentioned on these calls and posted in our year-end statements of 2012, this quarter our financial statements and MD&A came references to non-GAAP disclosures, which in essence, contain the metrics of proportionately accounted for Alumbrera and Pueblo Viejo, the details of which are outlined on Page 7 and Page 8 of our MD&A. We believe that in order to better assess the financial performance of the company, reviewing our financial results on a non-GAAP proportional basis rather than utilizing GAAP basis of equity accounting events is more relevant.

First quarter in 2013 595,000 ounces of gold at an average realized price for ounce is $1622. The all-in sustaining costs $1,135 per gold out, resulting in the gross margin of some 30% versus 46% last quarter. The decline in our margin is due to primarily an increase in our all-in sustaining costs quarter-over-quarter.

The costs are forecast to decrease throughout the remainder of the year, work through the planned lower grade material at Peñasquito and Alumbrera gets back on plan. By product cash cost were higher $565 per ounce compared to $360 per ounce in the prior quarter due to lower by-product revenues, planned lower production at Peñasquito, lower than expected performance at Alumbrera. Copper revenues were lower by some $56 million as a result of lower production in Alumbrera. Silver revenues decreased by $17 million due to reduced selling prices while zinc revenues decreased by $13 million primarily due to lower volumes sold in Peñasquito.

On a coal product basis, cash cost increased to $710 per ounce a quarter compared to $621 prior quarter primarily due to lower ounces produced. All-in sustaining cash cost for Q1 2013 were $1,135 per gold ounce compared to $910 per gold ounce in the prior quarter. You are on track to meet the annual guidance of $1,000 to $1,100 per ounce. Details of this calculation were disclosed on Page 41 of our MD&A.

Net earnings for the first quarter amounted to $309 million or $0.38 per share compared to $504 million or $0.66 per share in the prior quarter. Adjusted net earnings for the quarter amounted to $253 million or $0.31 per share compared to $465 million or $0.57 per share in the prior quarter. To calculate adjusted earnings, we adjusted our reported net earnings of $309 million by detecting this non-cash derivative gains of $41 million primarily associated with our convertible debt and removed the effect of the non-cash foreign-exchange gains, translation of deferred income tax assets and liabilities $17 million book tax provision.

Detailed calculation of our adjusted net earnings is posted on Page 42 of our MD&A. Consistent with previous quarters; we did not make any adjustment for non-cash share-based compensation expense which amounted to $18 million or $0.02 per share.

The income tax provision included in our calculated adjusted earnings for the first quarter has an applied tax rate of 20%. Calculates the more meaningful effect rate one needs to have the book tax provision of $50 million for the quarter, foreign exchange gains on deferred taxes of $17 million, and income tax expense related to Alumbrera and PV $21 million.

From the earnings before tax deduct $41 million of net mark-to-market gains from derivatives representing permanent differences as these items will never be taxable, this resulting in an effective tax rate of 45% for the quarter. The lower rate as compared to our guidance of 29% is due primarily to the positive tax impact that results Mexican inflation on tax guidance. We continue to expect that our full year 2013 effective rate would be 29%.

Moving to provisional pricing, the impact of Peñasquito in the first quarter was a positive $2 million compared to a negative $20 million in the prior quarter reflecting a 1% increase in the realized prices to higher volume of sales at the end of fourth quarter of 2012 subject to pricing adjustments in the first quarter 2013.

The end of the first quarter of 2013 Peñasquito provisional pricing volume will reflect 19,000 ounces of gold priced at $1598 per ounce, 1.4 million ounces of silver priced at $28.64 per ounce, 10.4 million pounds of lead price at $0.95 per pound, 31 million pounds of zinc priced at $0.85 per ounce.

Alumbrera also benefited from positive provisional pricing impact of $4 million mainly due to higher realized copper prices. As at March 31, 2013 we have 27.6 million ton of copper to 25. During the quarter, the company generated adjusted operating cash flows of $400 million or $0.49 per share included as a reduction to those cash flows as this is usual in the first quarter, the true up of cash taxes at our Canadian mine on behalf of the 2012, 2013 next year amounting to $90 million or $0.11 per share.

We invested $577 million at both of our operating mines and projects; hit a $122 million dividends. We’re ahead of where we expected to be in our financial plan for future, we under spent on our capital programs at the various mines, projects. However, we do expect to catch-up on the spend shortfall throughout the remainder of the year.

As progressed at our capital projects continued to ramp up, made capital investments of some $322 million during the quarter at our growth projects, $255 million of sustaining capital at our operating mines. This year will be our peak year of new project capital spending Cerro Negro and Éléonore will have almost 75% of total capital spending relating to this project completed by the end of this year.

Included in the $322 million spend with $152 million at Cerro Negro, $126 million at Éléonore. It is important that I point that we do have the ability to defer and reduce capital expenditures, explorations and G&A expenses for the year, get through was prolonged reduced coal price.

With over $4 billion of liquidity, strong credit ratings of DDD+, DAA2, we are very comfortable we can fund our capital programs both at our operating mines and new projects and any foreseeable gold price scenario. It is prudent to have a strong balance sheet and a thoughtfully planned and flexible capital expenditure program that provides us the ability to manage the business with the optimal net of benefit of our shareholders.

Lastly, we are comfortable with our guidance for 2013 we announced back on January 07. Gold production in 2.55 and 2.80 million ounces at all-in sustaining cost of $1,100 per ounce of gold, $525 to $575 per ounce of gold on a by-product basis, $700 to $750 per ounce of gold on a co-product basis. We also reconfirm the capital spending guidance $2.8 billion. We continue to believe that investing in our high growth projects, growing our production profile while at the same time ensuring we have the financial flexibility to maintain our strong balance sheet will provide the best return for our shareholders.

With that, I’ll turn it back over to you operator for questions.

Question-and-Answer Session

Operator

Thank you (Operator Instructions) The first question is from Brian Yu from Citi. Please go ahead.

Brian Yu – Citigroup

Thank you. Hi, Chuck, you guys had pretty good results as you highlighted. If you annualize a number, it seems like you have come in well below guidance. Can you discuss is there anticipated changes and great expectations contributing to that decline for the rest of the year or is somewhat related to destressed line that you are planning?

Charles A. Jeannes

I’m really sorry Brian. I don’t know whether it’s your phone or speakers here, we did not – I heard something at the end about destressed line of Red Lake. You would perhaps…

Brian Yu – Citigroup

Yeah, is this any better?

Charles A. Jeannes

A little better, yeah.

Brian Yu – Citigroup

Okay. The Red Lake is outperforming for the year. So I am wondering what’s the factor that would attribute to equal results for the remainder relative to your full year guidance as it because of the distress slot that you are planning or something else.

George R. Burns

No actually, this is George and actually the destress slot is really a minor issue in the year 2013. There is only 5000 ounces contingent on that destress slot. So, a good production in the first quarter as a result of the destress work we did last and it has given us much more flexibility in the high graded zone. In terms of the first quarter relative to our guidance for the year, its just normal fluctuations in the ore body in the mine plan.

Brian Yu – Citigroup

Okay and my second question is you mentioned about the contingency plan there are any numbers that you do want to share with us behind that.

George R. Burns

Well not really, I mean we’ve run contingencies as we’ve always do during our budgeting process and we are going to dusted those off and looked at what we would do in a sustained $1,400 gold price environment, what we would do at $1,200 or below. And I can tell you, at 2014 none of our growth projects really changes, we certainly won’t miss this opportunity to look for some belt tightening around the organization in terms of G&A expenditures and looking at non-necessary projects around the organization. And I think there is some meaningful dollars that will come as result of that, but we have in mind what we would do in a contingency basis but we are not there, we are not – add a position with the gold price that we feel like we have to implement it.

Brian Yu – Citigroup

Thank you

Operator

Thank you. The next question is from John Timothos from John Tumazos Very Independent Research. Please go ahead.

John Timothos – John Tumazos Very Independent Research

I have two questions and thank you for taking me. First, in continuing you cost cuts at the stated by-product prices, should we infer that you expect silver to recover over $34 to average $34 and copper to recover over $350 to average $350, et cetera, et cetera. Or should we conclude that it’s just a line of word to start up the [Brazilian] mines and you haven’t read on your budget? Or thirdly, the ore grades or start up there are going to be so good in the second half to make up for the by-product crisis.

And the second question, we calculated a 3.8% after tax return on assets in the first quarter. Marking them to last night’s metals prices and a normal tax rate, we got 1.5% return on assets. At today’s prices roughly what do you think your return on assets would be three years from now with all the mines built?

Charles A. Jeannes

Good morning, John. Let me refer with the first question. By confirming our cash cost guidance, you should infer primarily from that that our by- product production is going to increase significantly over the course of the year from where it was in the first quarter. When we talk about the grades of Peñasquito it’s not just gold grade, its silver, zinc and lead grade.

And George went through the kind of increase we expect to see there over the course of the year and those proportions are roughly the same for what we see for the by-product. And as you know, those contribute a lot of revenue at Peñasquito. And similarly Alumbrera we are down in the first quarter and expect to recover and so we see significantly higher copper production later in the year.

All of those things are taken into account in our by-product cost estimate and our sustaining cost estimate in total. In terms of the prices we assume, those are published to be have assume $30 silver not $34, $3.50 copper and $0.90 led and zinc. So we don’t think that there is any need to change our guidance based on current prices of those by-products.

Second question, we would have to do some work to give you spot numbers in terms of our returns. But certainly we don’t look at returns on a quarter-by-quarter or day-by-day basis, because we make investments for long-term and it’s just not fair frankly to look at the performance this year or this quarter when we know we’re in a very low rate cycle at two of our mines, and then run that out for the light of the company and improve our rate of return that clearly wold be substantially lower than what we expect.

Going forward, we target a pretax rate of return in excess of our cost of capital. So over 10% for our new investments and I think based on the numbers that have just been handed to me, the return on equity would be about 8% for the first quarter, if you look at our debt-to-equity ratio. Yeah, okay. Sorry, I’m getting into some of Lindsay’s numbers that he might want to talk to you. I hope that answered your question, John.

John Timothos – John Tumazos Very Independent Research

Thank you.

Operator

Thank you. Our next question is from David Haughton from BMO. Please go ahead.

David Haughton – BMO Capital Markets

Yes hi, Chuck, George and Lindsay, thank you for the update and especially interested in George’s comments about where Peñasquito grade should be going? Just looking at that in a little bit more detail if you don’t mind George, should we think about that grade improvement in gold as a linear change through the quarters or would have a step change with the big step up in the back end year?

George R. Burns

So Q1 is definitely the low quarter for the year and in my prepared remarks the 0.6 approximate grade is the fourth quarter, middle of the year is going to be in between those two numbers is generally the guidance.

David Haughton – BMO Capital Markets

Okay. So if I took a linear kind of view that sounds reasonable.

George R. Burns

Yes.

David Haughton – BMO Capital Markets

And the other grade of course that were down were your bye product grades so that the silver, the lead and the zinc should we think about that having a similar percentage improvement over the course of the year nearly up more than 50% over the course of the year?

George R. Burns

Yes, generally the bye products are going to see the same sort of increase.

David Haughton – BMO Capital Markets

Okay. You had also mentioned to the recovery issue and carbon content in particular. Am I correct in reading but it just happens to be the benches that you’re working through now and is a number that will go away business moving into deeper benches?

George R. Burns

Yeah if you take a look at our say last five quarters of production and take a look at head grade and recovery, you will see a pretty decent correlation between the recoveries in each metal, and the head grades in metal. So, yes in fact, in first quarter we’re mining the next phase of Peñasquito in top of the ore body, so we’ve done lower grade and lower recoveries going with those lower grades.

On top of that, the carbon content was high in this area that also impacts recoveries, but as this push back gets deeper into the deposit, the head grade will increase significantly each quarter, and the recoveries will also increase.

David Haughton – BMO Capital Markets

Okay. So it sounds like two items there, the fixed component and the carbon.

George R. Burns

That’s correct.

David Haughton – BMO Capital Markets

All right. Just switching to a different story now Cerro Negro had highlighted the potential with the start-up could slip out of 2013 into 2014, and that there may be additional pressure on the CapEx there, should we be thinking about this as a commercial start up more in the first or perhaps second quarter of 2014, or are you still comfortable with the earlier time in that?

Charles A. Jeannes

Hi Dave, this is Chuck. I guess two things there, one when we’ve been talking about all along first gold in late 2013, that wasn’t commercial production, always intended to take place in the first half of 2014, and we haven’t been more detailed in that in the guidance, because as you know there is accounting and completion tests that will need to be made and its hard to know today exactly when they will be.

But more important point I think is that, what we tried to do is be very advanced in our guidance in terms of the fact that we still think that we hit first gold production in 2013 but there is a potential that we won’t because of things that are going on right now in terms of lining up contractor to complete the electrical installation there.

As we said in the materials, the permit was issued later than expected and that has generated some question as to which contractor will do the work-in and when it will be completed. So, we’re just trying to be conservative here and let you know that there is the potential for it. But that’s not what we’re planning on today.

David Haughton – BMO Capital Markets

All right. And as far as the capital, I presume it is all tied up in that timeline as well, but should be we thinking that maybe it could be 10%, 15% higher than your 1.35?

Lindsay Hall

While we don’t have a number for you because the primary impact is pushing expenditures into 2014 for which we haven’t made in an inflation as I said assumption. If you recall the, we talked a lot about this in our MD&A last quarter in Investor Day that we have assumed the 25% inflation rate in Argentina for 2013 with no corresponding devaluation of the peso.

We think the devaluation is inevitable but there is no way of knowing when it will come so, we haven’t made those assumptions for 2014. We’ll just have to wait and see what happens, but if you push spending into 2014 and the inflation rate continues and there is no corresponding devaluation, we’re going to see a higher number.

David Haughton – BMO Capital Markets

Excellent. Thank you very much.

Operator

Thank you. The next question is from George Topping from Stifel. Please go ahead.

George Topping – Stifel Nicolaus

Great, thanks and nicely coming on from that, given the peso inflation disconnected to mention. What cash cost per ton, are you suggesting for Cerro?

Charles A. Jeannes

Papers are being slipped as we try to find that for you George. Yeah, these are current dollar estimates and so without trying to anticipate inflation or peso exchange rates for the rest of the mine life, I’ll give you to George?

George R. Burns

Yeah, so we’re looking at cost per ton mill of around $140 of ton.

George Topping – Stifel Nicolaus

Okay, very good. And then on Peñasquito to the water study, the new water source, what timeline to access that would you think?

George R. Burns

So we’re actively completing those studies. We’re working on detailed engineering. I can’t give you a definite update. But I can tell you it’s in the same basin. We’ll be tieing into the existing well field infrastructure and so it’s a medium term type construction activity and we’ll have a lot more information on that next quarter.

George Topping – Stifel Nicolaus

It’s just to confirm that no new permits for it?

George R. Burns

No, we have the existing permits to meet our water needs within that basin and so this new well fields within our permitted area.

George Topping – Stifel Nicolaus

Okay, that’s good. And then just lastly, El Morro is featured in the MD&A and it looks like $17 million, which is spent on a ton, certainly what the budget for El Morro with this year is and whether it could be deferred?

Lindsay Hall

Yeah, I can’t recall the exact budget. We’re looking that up for you George. It’s about $60 million with the original budget for the year and certainly that is one of the projects that you would look to should you want to defer some spending. And I think that’s far as I could go right now.

George Topping – Stifel Nicolaus

All right. The 60 million or so, do you know what is the – when is the baseline studies, or what security, or do what’s that relating to?

Lindsay Hall

It’s everything, it’s continuing the work to reinstate the permit, it’s engineering on looking for all of the optimization, add all of the optimization opportunities we have there, and it’s securing and maintenance of the site, there’s a lot that goes into that, no construction.

George Topping – Stifel Nicolaus

All right. Thanks, George. Thanks George.

Operator

Thank you. The next question is from Jorge Beristain from Deutsche Bank. Please go ahead.

Jorge Mariano Beristain – Deutsche Bank

Good afternoon, guys. I guess my question is for Lindsay. Could you explain and talk to what led to the accounting treatment change at those two mines, and was there any particular trigger that changed the way you report them?

Lindsay Hall

No change in the way that as you would, to the agreements we have in running the mine, simply just change in accounting literature and IFRS has a view that you can’t proportionally consolidate.

So nothing changed at (inaudible), but that accounting rules changed in 2013, we had to adopt that. And certainly with commercial operations at PV now, we had to adopt somewhere, but nothing has changed in the management agreements, just the accounting.

Jorge Mariano Beristain – Deutsche Bank

Right, and – but you guys have been on IFRS for over a year, so was that a change in the actual IFRS rules during 2013?

Lindsay Hall

That’s correct.

Jorge Mariano Beristain – Deutsche Bank

Okay. And then may be my next question is for Chuck, could you, and again I don’t want to paint you into a corner here obviously but could you be a bit more specific about what you would consider, right now you are saying the gold collection is short-term in nature and a structural (inaudible) remains, but how many months or quarters would take of a low gold price for you to define that is being of a more permanent nature. In other words, would we expect perhaps 2013 to play out and then in 2014, if gold price is stable of 1,500 that you would affect some of these contingency cost cut plans.

Charles A. Jeannes

That’s a good question Jorge. I don’t have a specific number of weeks or months in mind that you really have to look at all the facts and circumstances. And like we do all the time, try to do your best assessment of the market going forward on what we think it will be, but a couple of points. One, as I said, we never want to led a crisis go to waste and so there is an opportunity right now to do some belt-tightening around the organization and we are doing that and we are going to do it, and that’s kind of independent of gold price.

Secondly, there is a series of actions that can be taken, first around deferral of capital spending and we look at it in terms of prioritization of – the first priority being things that won’t impact a five-year plan and the second priority being things that won’t impact the next two years and third priority being things that maybe will impact production as early as this year and next.

And so as we look at those things, we look first at capital or not first, but add capital and then we also look at discretionary spending like exploration and further G&A reductions and the like. So there is a whole series of things that we’ll look at. I suspect if the gold price did not recover, it would be more of a continuum, I know it will be, more of a continuum than just deciding on a certain day that we are going to change everything because remember we do our long-term planning at a very low price to begin with, which is much lower than where we are today. So in terms of the long-term we’re very comfortable with our plans. So they be more of the shorter term deferrals to maximize cash and minimize the cash outlays.

Jorge Mariano Beristain – Deutsche Bank

Got it and so if you could remind me what gold price you run for your proven and probable reserves?

Lindsay Hall

13.50

Jorge Mariano Beristain – Deutsche Bank

Got it. Thanks.

Operator

Thank you. The next question is from Steven Walker from RBC Capital Markets. Please go ahead.

Steven Walker – RBC Capital Markets

Thank you, operator. Just a couple of questions, just on the earlier question on the water source for Peñasquito, my understanding is that drawn from the same aquifer that has been produced now which is a bedrock gravel aquifer, is that in fact the case?

Charles A. Jeannes

Yeah we’re pumping out of alluvial aquifer in the Cedral space and mine and the new well field that I explored to is in the same basin on the north end of the valley.

Steven Walker – RBC Capital Markets

I guess the question is those aquifers are generally through rain water and recharge from surface or near surface waters. What is the – I don’t need another drought right, but I was curious what is the weather, the precipitations and like and the amount of rainfall, I know that we’re – too much of 2010, 2011, and 2012. I’m just curious how the recharge is going and whether do you feel that that is again going to be able to provide enough water for 130,000 tons a day over the next 12 to 24 months, 36 months.

Charles A. Jeannes

So I can’t tell you that the drought in the region is generally continuing, we haven’t seen rate increase and precipitation, but the existing well field which we currently rely upon have seen some drop down due to pumping, but the rest of the basin has not been impacted by our operations minimally impacted by the drop period.

So the fact that we’ve got a new well field in another part of the basin gives us completely new place to rely on water is robust and its up and impacted with the operation today. So we’re feeling confident that this is going to be a good solution for sometime in the future, those studies as I mentioned aren’t complete we’ll have more details in next quarter.

Steven Walker – RBC Capital Markets

Okay, thanks for that. It’s helpful. And just the detail feasibility study obviously is going to look at the reconfiguring of the existing tailings facilities, in order to have the water usage efficiency, can you explain what was – in the original design for the tailings is this an expansion of the tailings in anticipation of greater throughput is this just a reengineering of the retaining wells in the pumping system?

Lindsay Hall

So the tailings pond goes to numerous expansions throughout the life of the Peñasquito operation. So that’s sort of normal. In the early design, in the plant that we’ve constructed, we have no thickeners in the tailings pond and the reason for that was the metallurgical work that was completed prior to production indicated that recoveries would suffer if water was recycled from thickeners right back into the plant.

Steven Walker – RBC Capital Markets

Great.

Lindsay Hall

So as the result of not putting in thickeners the water consumed by the tailings is significantly higher than it would be if we had thickeners. Now that we’ve been in operations for couple of years, we’ve done a lot of test for – that now shows that we would not have any kind of material impact on recovery we had a thickeners. The question is that we had thickeners then it changes the deposition methods of tailings that hasn’t impact on the design. So those are the things we’re working through.

To understand, how do we optimize the use of thickeners and a new method to deploy tailings out into the pond? And so we’ll have a good idea in this, these studies that are being completed, what that looks like and whether or not we’re going to proceed more detail engineering on a tailings new design in order to reduce more consumption.

Steven Walker – RBC Capital Markets

Okay, thank you. And just one last question on Penasquito, you are commissioning the waste rock conveyor here into the second quarter. When do you expect it to be fully operational? And just as a follow-up to that, if you’re trailing three quarters, mining cost that Penasquito average to $1.19 a ton, what positive impact if any? Would you expect with that conveyor up and running on a per ton basis?

Charles A. Jeannes

So in terms of the ramp up, we’re fully commission and I expect that ramp up the full production happen in second and third quarter. In terms of the impact on cost, really what’s happening here is we’re – we put in the conveyor as the long-term investment in order to move waste, a long waste from the edge of the [mine] and outwards the tailings facility.

So what that does is eliminates the requirement for us that add trucks throughout mine line. So I would describe it more as an investment to ensure cost don’t escalate over time, as we have to hauling further and further from the pit. So don’t expect our overall cost per ton to drop, but look at this as an investment to stop cost from increasing into the future.

Steven Walker – RBC Capital Markets

Great.

Charles A. Jeannes

The real opportunity for our cost reductions really focused on our operating for excellence program and I can tell you we’ve got some really exciting things happening in Peñasquito in terms of focus on efficiencies and productivities in all phases of the operation but in particular, in the mining area.

Steven Walker – RBC Capital Markets

Okay. Thank you very much for the details.

Operator

Thank you. Our next question is from Greg Barnes from TD Securities. Please go ahead.

Greg Barnes – TD Securities

Yes, thanks operator. Chuck, rhetoric seem to be ramping up on behalf of the government. How do you see things evolving there? I understand this morning that the government may have halted shipments of gold from DR until there is an agreement.

Charles A. Jeannes

Well, Greg, I am unfortunately not able to go into any detail because there are as you can appreciate discussions ongoing almost as we speak and there has been a lot of back and forth and unfortunately there has been some public rhetoric around those discussions and – all I can say is I know Eric is the operator, he is working very hard on this. They’re working very closely with us and keeping us informed and we’re involved in the decision making around those discussions but until something gets to a point where there is definitive dews one way the other, there is really nothing more we can say.

Greg Barnes – TD Securities

Do you think it’s getting closer?

Charles A. Jeannes

I would assume the passage of time would get closer to some sort of resolution, yes.

Greg Barnes – TD Securities

Okay, fair enough.

Operator

Thank you. Our next question is from Anita Soni from Credit Suisse. Please go ahead.

Anita Soni – Credit Suisse

Good morning guys. So first question start with PV, the throughput there from quarter-over-quarter came down a little bit. Could you give me some insight into what happened there?

Lindsay Hall

Yeah sure. As you know we had a number of retrofits we needed to implement in the autoclave circuits, and so we’ve now got three of the autoclave completed in the downtime was taken basically to make those retrofits. In fact, we have the fourth autoclave were retrofitted in the second quarter in the – in a really good position and continue to ramp up to full production in the second half.

Anita Soni – Credit Suisse

So I should have said the mining, the mining throughput tons of ore mined and I didn’t mean the plant is the process plant?

Lindsay Hall

I mean that just a normal fluctuation in the ore body and the stripping, so nothing significant there.

Anita Soni – Credit Suisse

Okay. And then on grades and recovery at Marigold, I think you’ve talked about the leach pad and starting a new level on the leach pad, could you walk me through what’s going on there little confusing, I guess – around that?

Lindsay Hall

Sorry I need Marigold is not one that we were prepared to...

Anita Soni – Credit Suisse

Nobody doing it.

Lindsay Hall

Questions on. So give us just a moment.

Anita Soni – Credit Suisse

Okay. So I’ll ask another question again then work as well the heat distribution issues that you had there with I guess with the solution there has that been resolved at this point?

Lindsay Hall

Yeah, we have some issues with the distribution piping upon the leach pad and that has been fixed and we are on track there to hit our production for the year and back to Marigold, the ore closes with slightly up prior quarter more significantly the grades down and we’re in new fit in the top of the ore body with significantly ore grades and that really was the impact.

Anita Soni – Credit Suisse

Right, but I think in the first quarter, I mean if you look at the, I guess trying to back out what was going on in the fourth quarter and in the first quarter, you’ve got, you hit around 55%, 56% heap leach recovery in 54%, and then you’re up above 110% in this quarter. So how should I think about recovery rates for rest of the year?

Lindsay Hall

The recovery rates will be improving, and tied into our guidance for the year, we’re going to be on track.

Anita Soni – Credit Suisse

And then could you just I missed when you said the throughput of Penasquito, what you would get up to in terms of tons per day by the fourth quarter?

Lindsay Hall

Well, our current plan is sticking with the 105,000 tons a day. My comment was that with a new well field that we’ve found, we believe that’s going to allow us to get 130,000 tons a day, but it’ll only be once we get that new system constructed and tied into operation. That’s out into the future our guidance is still 105,000 tons for the year.

Operator

Thank you. The next question is from Paretosh Misra from Morgan Stanley. Please go ahead.

Paretosh Misra – Morgan Stanley

Good afternoon, guys. Thanks. First just going back to Penasquito, and what’s your throughput target rate for next year at Penasquito?

Charles A. Jeannes

Yeah we’re essentially sticking flat with that 105,000 tons a day to 110,000 tons a day into the future, until we complete the water studies and we understand the timing to implement those improvements.

Paretosh Misra – Morgan Stanley

And besides these improvements is there any other seasonality that we should be aware of looking on a quarterly basis?

Charles A. Jeannes

You’re talking Penasquito still?

Paretosh Misra – Morgan Stanley

Yeah.

Charles A. Jeannes

No really, it’s just head rate improving as the next phase, Phase 4 gets deeper into the ore body. We’ll see all the metal grades increase and recoveries improve throughout the year.

Paretosh Misra – Morgan Stanley

Got it; so no other maintenance outage other than some of the things that you described this year?

Lindsay Hall

Correct

Paretosh Misra – Morgan Stanley

And one final question on Cerro Negro. In terms of labor force, are you almost at full capacity or there are more positions you need to fill?

Lindsay Hall

No we’re still in the ramp up phase. We’ve got operators and we’re focused on getting into operating phase late in the quarter but we are still ramping up our work force both underground and for the plant.

Paretosh Misra – Morgan Stanley

Great thanks.

Lindsay Hall

Yeah.

Operator

Thank you, there are no further questions registered at this time. I would now like to turn the meeting back over to Mr. Wilhoit.

Jeff Wilhoit

Okay thanks operator and thanks everyone for joining us today. I do want to make one correction when I was asked about the moral capital spend for the year, the budget was actually 75 but the rest of my remarks would continue to apply.

So thanks for joining in as I said at the outset, we are pleased with the start to the year. We do expect significant improvements in our production and cost and therefore financial results as the year progresses and we look forward to updating you in the second quarter. Thanks very much.

Operator

Thank you, the conference call has now ended. Please disconnect your lines at this time and we thank you for your participation.

Copyright policy: All transcripts on this site are the copyright of Seeking Alpha. However, we view them as an important resource for bloggers and journalists, and are excited to contribute to the democratization of financial information on the Internet. (Until now investors have had to pay thousands of dollars in subscription fees for transcripts.) So our reproduction policy is as follows: You may quote up to 400 words of any transcript on the condition that you attribute the transcript to Seeking Alpha and either link to the original transcript or to www.SeekingAlpha.com. All other use is prohibited.

THE INFORMATION CONTAINED HERE IS A TEXTUAL REPRESENTATION OF THE APPLICABLE COMPANY'S CONFERENCE CALL, CONFERENCE PRESENTATION OR OTHER AUDIO PRESENTATION, AND WHILE EFFORTS ARE MADE TO PROVIDE AN ACCURATE TRANSCRIPTION, THERE MAY BE MATERIAL ERRORS, OMISSIONS, OR INACCURACIES IN THE REPORTING OF THE SUBSTANCE OF THE AUDIO PRESENTATIONS. IN NO WAY DOES SEEKING ALPHA ASSUME ANY RESPONSIBILITY FOR ANY INVESTMENT OR OTHER DECISIONS MADE BASED UPON THE INFORMATION PROVIDED ON THIS WEB SITE OR IN ANY TRANSCRIPT. USERS ARE ADVISED TO REVIEW THE APPLICABLE COMPANY'S AUDIO PRESENTATION ITSELF AND THE APPLICABLE COMPANY'S SEC FILINGS BEFORE MAKING ANY INVESTMENT OR OTHER DECISIONS.

If you have any additional questions about our online transcripts, please contact us at: transcripts@seekingalpha.com. Thank you!

Source: Goldcorp's CEO Discusses Q1 2013 Results - Earnings Call Transcript
This Transcript
All Transcripts