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Kinross Beats on Earnings, Profit Slides

Zacks Equity Research

Gold miner Kinross Gold Corporation (KGC) reported adjusted (excluding one-time items) earnings of 5 cents per share in the third quarter of 2013, roughly 77 % slide from 22 cents earned in the year-ago quarter. The results, however, beat the Zacks Consensus Estimate of 3 cents.

On a reported basis, the company’s net earnings from continuing operations slumped to $46.9 million (or 4 cents per share) from $226.2 million (20 cents a share) recorded in the year-ago quarter. The bottom line was hit by lower gold prices.

Revenues decreased roughly 21% year over year to $876.3 million due to lower average realized gold price in the quarter. However, it came ahead of the Zacks Consensus Estimate of $730 million.

Operational Performance

Gold production was 680,580 equivalent ounces from continuing operations for the quarter, up around 1.3% year over year, driven by a spurt in production at Fort Knox and Paracatu. Average realized gold price was $1,331 per ounce, down 19% from the year-ago quarter.

Production cost per gold equivalent ounce was $740 in the quarter versus $677 in the prior-year quarter. Margin per gold equivalent ounce sold was $591, down 39 % from the year-ago quarter.

Financial Review

Adjusted operating cash flow was $256.4 million, down 41 % from $435.5 million in the prior-year quarter. Cash and cash equivalents were $932.1 million as of Sep 30, 2013, down roughly 55% year over year. Total long-term debt declined roughly 19% year over year to $2,118 million.

Capital expenditures were $300.8 million versus $440.4 million in the comparable period last year. The decrease was due to lower spending at Paracatu, Dvoinoye, Tasiast Maricunga and La Coipa.

Cost Reduction Measures

Kinross has undertaken various additional initiatives to reduce operating costs and capital expenditures, and maximize cash flow in light of the recent drop in gold price.

For the remainder of 2013, Kinross has identified roughly $50 million in capital savings in addition to the $150 million in savings opportunities announced earlier. The company now expects its 2013 capital expenditures to be about $1.4 billion compared with the previous forecast of $1.45 billion. Kinross remains on track to meet its revised exploration expenditure forecast of $130 million.

The company is in the process of completing its 2014 budget and estimates capital expenditure to be in the range of $800-$900 million in 2014.

Kinross’ new cost reduction measures include integrating the North and South America regions’ businesses into a new Americas region consisting of five operating mines (Fort Knox, Kettle River-Buckhorn, Round Mountain, Maricunga and Paracatu). Administrative offices in Chile and Brazil will be downsized and the company's office at Reno, Nevada will be closed, with regional administrative functions being re-located to Denver, Colo.

Growth Projects

The Tasiast feasibility study on a mill expansion remains on track and is expected to complete in the first quarter of 2014.

Kinross started commercial production at Dvoinoye in October, on schedule and within budget. The mine is projected to produce between 235,000 and 300,000 of gold equivalent ounces annually during its first three full years of production.


Kinross increased its production guidance for 2013 and expects to produce about 2.6–2.65 million gold equivalent ounces, above its previous expectation of 2.4-2.6 million ounces. The company estimates production cost of sales to be at the lower end of its guidance of $740-$790 per gold equivalent ounce and also anticipates its all-in sustaining cost guidance to be at the lower end of $1,100-$1,200 per gold equivalent ounce.

Other operating costs are forecast to be roughly $110 million, compared with the previous guidance of $90 million, partly due to project-related severance and other associated costs.

Kinross currently carries a Zacks Rank #3 (Hold).

Other companies in the mining industry with a favorable Zacks Rank include Franco-Nevada Corp. (FNV), Pretium Resources Inc. (PVG) and Lake Shore Gold Corp. (LSG). While Franco-Nevada and Pretium Resources carry a Zacks Rank #1 (Strong Buy), Lake Shore Gold hold a Zacks Rank #2 (Buy).

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