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Why Kinross Gold Trounced Peers and Soared 38.9% in 2017

Neha Chamaria, The Motley Fool

What happened

Kinross Gold (NYSE: KGC) was among the top five gold mining stocks in 2017, logging a solid 38.9% gains and handily outperforming peers Yamana Gold (NYSE: AUY) and Barrick Gold (NYSE: ABX). While Barrick lost 9.5% as lower production from its majority-owned Acacia Mining that's embroiled in tax disputes with the Tanzanian government hits its bottom line, Yamana recouped its yearly losses only in December to end the year with 11% gains as investors turned hopeful about the miner's prospects.

As it turns out, none of Kinross' rivals shone as brightly in 2017, and the only ones that did were lesser-known names such as Kirkland Lake Gold and IAMGold. An asset sale, a much-awaited expansion at its high-potential but controversial Tasiast mine, and lower costs sum up 2017 for Kinross.

So what

Speaking of Kinross' operational performance, there are two key points to note:

  • 2016 was a record production year for Kinross. It expects to hit the higher end of its estimated range for 2017, which would mean roughly 3% lower production at around 2.7 million gold equivalences ounces (GEOs).
  • Kinross' 2016 all-in-sustaining cost (AISC) came in at $984 per GEO. It expects FY 2017 AISC to be around $925 per GEO.

Here's the most interesting number: Kinross suffered a net loss of $104 million in 2016 because of hefty impairment charges. Comparatively, it earned net income worth $227.8 million during the nine months ended Sept. 30, 2017. In other words, Kinross is set to deliver a solid year short from an earnings standpoint, which has got investors excited.

Gold rocks with a stock graph in the background.

Image source: Getty Images.

As for growth, 2017 was a significant year as Kinross not only advanced its Tasiast Phase One expansion but also kicked off Phase Two of the program. For those of you who may not know, Tasiast was touted as Kinross' crown jewel when the miner bought it in 2010 until sliding gold prices put the brakes on the project and cost Kinross billions of dollars in writedowns.

Phase One should hit commercial production by the second quarter of this year, while Phase Two should start anytime now. Meanwhile, Kinross is also advancing its projects in Nevada that it bought from Barrick Gold in 2016. As part of its funding plans, Kinross sold its stake in the Cerro Casale project in Chile to Goldcorp last year, raising $260 million in cash. The sale also includes additional payments and a royalty contingent upon the production status of the mine.

Now what

By now, it's clear why the market bid Kinross shares higher in 2017. The miner is on track to solid profits in FY 2017 and is well positioned for growth as its expansion projects, especially Tasiast, come on line this year.

More than production, Tasiast should help Kinross bring down its costs, which is a must as its AISC is still at the higher end of the industry cost curve -- Barrick and Yamana, for example, expect to end FY 2017 with estimated AISC ranges of $740-$770  per ounce and $890-$910 per ounce of gold, respectively. Overall, Kinross should be an interesting stock to watch this year.

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Neha Chamaria has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.