We have reaffirmed our Neutral recommendation on gold miner Kinross Gold Corporation ( KGC). While Kinross is poised to gain from its exploration projects, we prefer to remain on the sidelines considering the current weak gold price and demand environment.
Both revenues and adjusted earnings for first-quarter 2013, reported on May 7, beat Zacks Consensus Estimates. Revenue growth was aided by an increase in gold equivalent ounces sold. Kinross saw higher gold production in the quarter.
Kinross is making steady progress in advancing the projects that give it a strong growth profile among leading gold producers. The divestiture of its 50% interest in Brazil's Crixas gold mine to AngloGold Ashanti Ltd. ( AU) last year has enabled it to turn its attention towards more important assets.
Kinross possesses the Tasiast gold deposit which has 20 million ounces of mineral resource base under its jurisdiction. The company recently announced that it is proceeding to a full feasibility study on the Tasiast expansion project based on the encouraging pre-feasibility results. Moreover, construction of the Dvoinoye mine in Russia, Kinross’s second most important project, is progressing well and ore processing is expected to begin in the second half this year.
Also, Kinross has streamlined its capital expenditure program, focusing on its priorities and not going overboard in its expansionary moves.
However, the gold price environment is not favorable of late. Gold price slumped to a two-year low (below $1,400 per ounce) in April 2013. Import restrictions by India, the world’s largest gold consumer, and slowdown in Chinese economy is weiging on price as well as demand for the yellow metal.
While Kinross's production cost (per gold equivalent ounce) fell year over year in the first quarter, we remain cautious on this front given the industry-wide cost pressure. Production cost of sales per gold equivalent ounce for 2013 is expected to be in the range of $740–790, higher than $706 recorded in 2012. Lower grades across most of the company’s mines may contribute to higher costs.
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