Goldcorp Inc., announced that it had deferred work at its Cerro Negro project in Argentina after the estimated construction cost jumped on permitting delays and higher labor expenses.
In January, Goldcorp announced that it would cost about $1.35 billion to bring the Cerro Negro mine to production, however new estimates have the cost at $1.6 to 1.8 billion, Goldcorp said in its third-quarter earnings statement.
Because of the cost increase, Goldcorp said it’s suspending exploration and development of the Mariana Norte vein at the site. Gold production is now expected to start in mid-2014.
“While we anticipated a slow ramp-up/delay at Cerro Negro, the deferral of Mariana Norte combined with the six-month delay is worse than we expected,” Greg Barnes, a Toronto-based analyst at TD Securities Inc., said in a note. Initial output was previously expected in the first quarter of next year, he said.
Cerro Negro has been affected by inflation in Argentina at an annualized rate of about 25 percent to 30 percent and no corresponding drop in the peso exchange rate.
Third-quarter profit excluding one-time items of 23 cents a share, exceeding the 20-cent average of 19 analysts’ estimates compiled by Bloomberg.
Net income fell to $5 million, or break even per share, from $498 million, or 61 cents, a year earlier. Sales declined to $929 million from $1.28 billion, missing the $1.07 billion average estimate.
The company’s average cost to produce and sell gold, after profiting from sales of silver and other metals, was $551/oz, compared with $220/oz in the third quarter of 2012 and the $554 average of seven estimates compiled by Bloomberg.
All-in sustaining costs, a more comprehensive metric adopted this year by most producers, rose to $992/oz from $801.
Gold production rose to 637,100 oz from 592,500 oz a year earlier. The average of eight estimates was for 683,100 oz.
Goldcorp expects 2013 output will be 2.6 million to 2.7 million oz, at all-in sustaining costs of $1,050 - $1,100/oz. Its previous forecasts were for 2.55 million to 2.8 million ounces and costs of $1,000 - $1,100/oz.