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Kinross Gold (KGC) Misses on Earnings, Beats on Revenues

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Gold miner Kinross Gold Corporation (KGC) posted adjusted earnings of $32.9 million or 3 cents per share in the second quarter of 2014, down 72.5% from adjusted earnings of $119.5 million or 10 cents per share in the year-ago quarter. Earnings per share also missed the Zacks Consensus Estimate of 4 cents per share.

Reported net earnings were $46 million, or 4 cents per share in the quarter, a significant improvement from a loss of $2,481.9 million, or $2.17 per share posted in the prior year quarter. Net loss in the second quarter of 2013 incorporated an after-tax non-cash impairment charge of $2,289.3 million.

Revenues decreased roughly 5.8% year over year to $911.9 million in the reported quarter due to lower average realized gold prices. However, it came ahead of the Zacks Consensus Estimate of $834 million.

Operational Performance

Gold production was 679,831 equivalent ounces for the quarter, up around 3.7% year over year, mainly due to a rise in production at Kupol, backed by processing of higher grade ore from the Dvoinoye mine. Average realized gold price was $1,285 per ounce, down 7.8% from the year-ago quarter.

Production cost per gold equivalent ounces increased to $742 in the quarter from $737 in the prior-year quarter. All-in sustaining cost per gold equivalent ounces sold decreased to $976 in the quarter from $1,038 in the year-ago quarter, mainly due to declines in sustaining capital and exploration and business development  costs.

Margin per gold equivalent ounce sold was $543 in the second quarter, down 17.4% from the year-ago quarter.

Financial Review

Adjusted operating cash flow was $228.3 million, down 11% from $256.7 million in the prior-year quarter. Cash and cash equivalents were $738.7 million as of Jun 30, 2014, up roughly 0.6% year over year. Total long-term debt declined 1.6% year over year to $2,026.5 million.

Capital expenditures fell to $120 million for the reported quarter versus $321 million in the comparable period last year. The decrease was due to lower spending at Tasiast.

Growth Projects

Kinross, in Mar 2014, announced Tasiast expansion feasibility study results. The study, which is based on an optimal mill size of 38,000 tons per day (t/d), produced promising results indicating Kinross’ potential to generate significant additional cash flow per share and production at overall lower costs.

Kinross is currently in discussion with Government of Mauritania on a number of tax- and labor-related issues. It expects to have these issues resolved ahead of its final construction decision for the Tasiast expansion project, which is not expected to be made before 2015.

Kinross has engaged BNP Paribas to help it with securing project financing, and is considering financing in the band of $700-$750 million of the project's cost. The remaining funding is expected to come from existing cash balances and cash flow.


The outlook for 2014 remains unchanged. Kinross expects to produce roughly 2.5-2.7 million gold equivalent ounces in the year. The company expects to meet its production cost of sales guidance of $730-$780 per gold equivalent ounce and its all-in sustaining costs guidance of $950-$1,050 per gold ounce sold for 2014.

The company also expects its capital expenditure to be about $675 million in 2014.

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

Some better-ranked stocks in the gold mining industry include AngloGold Ashanti Ltd. (AU), Sibanye Gold Limited (SBGL) and Harmony Gold Mining Company Limited (HMY). While AngloGold and Sibanye Gold sport a Zacks Rank #1 (Strong Buy), Harmony Gold Mining holds a Zacks Rank #2 (Buy).

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