Analyst Actions: Credit Suisse Neutral on Kinross; First Read - Guidance Update Negative


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2013 guidance - production and costs miss CS estimates: "KGC guided for gold production of 2.4-2.6M GEO at cash costs of $740-$790/oz, vs. CS's 2.79M GEO at $676/oz. We are not surprised by reduced production but had not yet rolled expected negative revisions into our forecasts (largely because we didn't really know which assets would be impacted). However the magnitude of the increase in operating costs was not anticipated. Total capex of $1.6B is in-line with the CS est. of $1.64B, but within that non-growth capital was higher than our forecasts."

Tasiast hit with $3.1B impairment charge, and not surprisingly (aside from early timing) opts for the 30ktpd option: "The $3.1B write-down for Tasiast was based on the PFS to be released in April 2013 for the 30ktpd CIL mill option. KGC also wrote off $0.1B in goodwill attributable to Chirano. The impairment test used a $1,500/oz LT gold price. Our NAV for Tasiast currently stands at $1.6B. We were already modelling the 30ktpd CIL mill only scenario, but we have not yet modelled the higher near and mid-term costs as the asset given the $1,061/oz cash costs at the asset in Q4/12."

Focus on margins apparent, Kinross keeps $1,200/oz gold with reserve update: "This resulted in a net reduction not surprisingly, but again, 'where and how much?' was the key question) in ounces at several assets in all categories. Resources -13% overall (-5% 2P, -20% M&I and -28% inferred)."

What to do with the stock short term? Wait and let the dust settle: "While we do believe that the majority of the negative news has been released we do not yet fully understand the implications. In our view there are enough negative valuation drivers, (expected: lower production and reserves/resources and unexpected: higher sustaining capex and costs) that we continue to believe it is prudent to wait and evaluate before jumping in."

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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This article appears in: Investing , Commodities

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