Kinross Beats Estimates in 3Q

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Gold miner Kinross Gold Corporation (KGC) reported adjusted earnings of 22 cents per share in the third quarter of 2012, beating the Zacks Consensus Estimate of 19 cents but trailing the year-ago earnings of 24 cents a share.

Net earnings, as reported, went up roughly 8.6% to $224.9 million (or 20 cents per share), from $207.1 million (or 18 cents a share) in the year-ago quarter.

Operational Performance

Revenues increased 6.6% year over year to $1,109.7 million, aided by an increase in production. Sales came ahead of the Zacks Consensus Estimate of $1,087 million. Gold production was 672,173 equivalent ounces, a 6.3% year-over-year increase, mainly due to production increases at Fort Knox and Kupol. The average realized gold price was $1,649 per ounce, up slightly from the year-ago quarter.

Production cost per gold equivalent ounce was $677 in the quarter versus $626 in the prior-year quarter. Margin per gold equivalent ounce sold was $972 in the quarter, down 5% from the prior-year quarter, mainly due to higher production cost of sales per ounce.

Financial Review

Adjusted operating cash flow was $434.4 million in the third quarter compared with $412.9 million a year ago. Cash and cash equivalents were $1.34 billion as of September 30, 2012, compared with $1.77 billion as of December 31, 2011.

Capital expenditures were $451.2 million in the quarter versus $389.6 million reported in the same period last year. The higher capital expenses were driven by project-related expenses at Tasiast.

Growth Projects    

Kinross is currently engaged in the development of a number of mines, the most important ones being Tasiast and Dvoinoye. At Tasiast, the company is currently reviewing a number of alternatives to develop the project in the most feasible manner.

Moreover, the company is on track to complete the pre-feasibility study at the Tasiast mill by the first quarter of 2013. At Dvoinoye, construction is progressing well and the mine is slated to deliver the first ore to the Kupol mill in the second half next year.

Apart from these projects, Kinross also has a few others in its portfolio. The company is currently continuing negotiations with the Ecuadorean government on an enhanced economic package at Fruta del Norte.

Outlook

Kinross expects to achieve the higher end of both the production guidance of 2.5–2.6 million gold equivalent ounces from its continuing operations and its cost of sales forecast of $690-$725 per gold equivalent ounce in 2012.

The company has reduced its 2012 capital expenditures expectation to approximately $2 billion, from the previous forecast of $2.2 billion. The company's depreciation, depletion and amortization will likely be around $255 per gold equivalent ounce, compared with the previously-stated guidance of $235 per gold equivalent ounce.

Our Take

Kinross, like other gold producers, Barrick Gold Corporation (ABX) and Newmont Gold Mining (NEM), benefits from rising gold prices. However, its results are constrained by rising costs and lower grades like the other players in the industry.

Currently, we have a long-term (more than 6 months) Neutral recommendation on Kinross. The company currently carries a Zacks #3 Rank, reflecting a short-term (1 to 3 months) Hold rating.
 

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