We are retaining our Neutral recommendation on
Kinross Gold Corporation
(
KGC
) following our assessment of its mixed second quarter results.
Adjusted earnings (excluding one time items) of 14 cents a share
missed the Zacks Consensus Estimate by a couple of cents.
Revenues rose 4.5% year over year to $1,006.7 million, beating the
Zacks Consensus Estimate of $1,005 million. Higher average realized
gold price led to a growth in the top line.
However, gold production decreased 4% year over year to 632,772
gold equivalent ounces in the quarter. The company's production
cost of sales per gold equivalent ounce jumped 27% to $725.
Kinross has trimmed its yearly production forecast to approximately
2.5-2.6 million gold equivalent ounces from the earlier target of
2.6-2.8 million. The revision reflects the sale of its 50% interest
in Brazil's Crixas gold mine to
AngloGold Ashanti Ltd.
(
AU
).
Kinross is expected to continue to reap the benefits of rising gold
prices moving forward. In addition, the company possesses the
Tasiast gold deposit which has 20 million ounces of mineral
resource base under its jurisdiction.
Kinross expects this mine to become productive from 2015 and
provide more value to shareholders. Construction of the Dvoinoye
mine in Russia, the company's second most important project, is
progressing well and ore processing is expected to begin in the
second half of 2013.
Also, Kinross has streamlined its capital expenditure program,
focusing on its priorities and not going overboard in its
expansionary moves. The company has decided to incur capital
expenditure out of the capital available with it, enabling it to
maintain its investment grade rating and also return cash to
shareholders.
However, Kinross may see some difficult times in the near-term due
to increasing cash costs and falling production levels at some of
its existing operations. In addition, macroeconomic issues could
weaken the demand for gold.
Moreover, Kinross' current below-average reserve base is a concern,
as it will compel the company to make acquisitions or scout for
exploration projects in a bid to replace reserves. These measures
may give rise to integration risk.
Kinross, which competes with
Barrick Gold Corporation
(
ABX
) and
Newmont Mining Corp.
(
NEM
), retains a Zacks #3 Rank, indicating a short-term Hold
rating.
BARRICK GOLD CP (ABX): Free Stock Analysis
Report
ANGLOGOLD LTD (AU): Free Stock Analysis Report
KINROSS GOLD (KGC): Free Stock Analysis Report
NEWMONT MINING (NEM): Free Stock Analysis
Report
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