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Goldcorp Inc (TSX:G, NYSE:GG) reported a significant drop in third-quarter profit on Thursday, as the price of gold declined and costs at its Cerro Negro project in Argentina forced the Canadian miner to leave it in stand-by.
The Vancouver-based firm said Cerro Negro is facing numerous challenges, including a delay in receiving permits to construct a power line, and inflation of 25% to 30% in Argentina. It also said is facing labour and productivity issues, as well as uncertainty related to a resource tax that was recently imposed by the provincial government of Santa Cruz.
Consequently, the gold giant is deferring spending at the project and suspending all exploration activity. First production at Cerro Negro is now expected for mid-2014, as opposed to the beginning of the year, as Goldcorp had announced in July.
The firm also warned that a 7.5% mining tax sitting in the Mexican senate these days will likely drive away its new investments if it gets approved.
There were positive points in Goldcorp’s announcement as well. “Most of our mines saw meaningful reductions in costs compared to the previous quarter, with particularly impressive improvement at some of our higher-cost operations such as Porcupine in Ontario,” chief executive Chuck Jeannes said in a statement.
The company regained yesterday its environmental permit to operate its El Morro mine from Chile’s Supreme Court, after last year’s freeze on the $4 billion project.
Net earnings fell to $5 million, or 1 cent a share, from $498 million, or 61 cents, a year earlier.
Excluding the impact of a new license agreement with the Dominican Republic’s government and other unusual items, earnings fell to $190 million, or 23 cents per share, compared to $441 million, or 54 cents per share in the same period last year.
Revenue fell to $929 million, from $1.28 billion.
Shares in the company were up over 4% to 27.66 cents at 9:50 am ET in Toronto and almost 3% in New York.
Goldcorp has jumped more than $2 billion in market value over the past week and is now worth $21.3 billion.
Image of Cerro Negro operations, courtesy of Goldcorp.
