The world's major gold producers in crisis - pt2

                                                                                         

Last week we featured declining profitability and rising costs amongst the world's two biggest gold miners.1Well, last night Goldcorp Inc, the world's third-largest gold producer by market value, added to the tale of woe.

Goldcorp revealed last night that its second-quarter profit fell by 98% as the US$ weakened and it wrote down the value of mines acquired last year.

According to Bloomberg, net income dropped to US$2.9 million, or break-even on a per-share basis, from US$190.4 million, or 49 cents, a year earlier.

Profit fell by US$104.4 million as Goldcorp revalued income-tax liabilities to account for the Canadian dollar's gain against the US$. In addition, costs to write down the value of mines acquired from Placer Dome and Glamis Gold jumped by 56% percent to US$114.4 million, outweighing increases in gold sales and prices.

Furthermore, the company cut its 2007 gold production forecast for a third time, down to a range of 2.2 million ounces to 2.3 million ounces, from a May estimate of 2.5 million ounces.

The company faces "grade issues" at the Marigold mine in Nevada and a slower-than-expected startup at the Los Filos mine in Mexico.

Cash operating costs in 2007 will be less than US$150 per ounce, up from US$33 last year, the company said.

Profit excluding the foreign-exchange loss and other items was US$95.3 million, or 14 cents a share, Goldcorp said. Analysts expected 19 cents a share, the average of 10 estimates in a Bloomberg survey.

On the positive side, the US$7.6 billion acquisition of Glamis in November helped Goldcorp boost gold production by 43% to 539,500 ounces. Gold sales rose by 37% percent to 546,400 ounces at an average price of US$665 an ounce, up 7.3%.

We reiterate our view that what all of this confirms is that higher gold prices are needed in order to offset rising costs in the industry. It also reinforces our positive long-term outlook on gold.

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