Kinross' Q2 Earnings Beat Estimates - Analyst Blog

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Gold miner Kinross Gold Corporation ( KGC ) reported adjusted (excluding one-time items) earnings of 10 cents per share in the second quarter of 2013, beating the Zacks Consensus Estimate of 6 cents but falling  about 29% from 14 cents earned in the year-ago quarter.

On a reported basis, the company slumped to a net loss of $2,481.9 million (or $2.17 per share), compared with net earnings of $113.9 million (10 cents a share) recorded in the year-ago quarter.

The loss resulted from a $2,289.3 million after-tax non-cash impairment charge related to lower short-term and long-term gold price assumptions. In addition, Kinross took a charge of $720 million related to its earlier announced decision to stop development of its Fruta del Norte (FDN) project in Ecuador that has been classified as a discontinued operation.

Revenues decreased roughly 4% year over year to $968 million due to lower average realized gold price in the quarter. However, it came ahead of the Zacks Consensus Estimate of $929 million.

Operational Performance

Gold production was 655,381 equivalent ounces from continuing operations for the quarter, around 4% year-over-year increase driven by a spurt in production at Tasiast and Fort Knox. Average realized gold price was $1,394 per ounce, down 11% from the year-ago quarter.

Production cost per gold equivalent ounce was $737 in the quarter versus $724 in the prior-year quarter. Margin per gold equivalent ounce sold was $657, down 22% from the prior-year quarter.

Financial Review

Adjusted operating cash flow was $256.7 million, down 4% from $268 million in the past year. Cash and cash equivalents were $1,163.1 million as of Jun 30, 2013, down 13%  from $1,337.7 million as of Jun 30, 2012.

Capital expenditures were $321 million versus $414.7 million in the comparable period last year. The decrease was due to lower spending at Paracatu, Maricunga, Kupol and La Coipa. Exploration expenditures were $32.9 million in the quarter, compared with $66.2 million in the last year quarter.

Dividend

Kinross' board of directors suspended the upcoming semi-annual dividend in order to maintain its strong balance sheet and liquidity position in the current lower gold price environment. The measure was undertaken by Kinross to reduce its operating and capital costs. In the future, decisions regarding the dividend will depend upon factors such as market conditions, balance sheet strength and liquidity, operational performance, and the impact of cost reduction measures.

Cost Reduction Measures

Kinross has undertaken various additional initiatives to reduce operating costs and capital expenditures, and maximize cash flow in light of the recent drop in the gold price.

For the remainder of 2013, Kinross has identified additional expected savings of roughly $180 million. It also expects more savings in 2014, depending on the ongoing cost reviews and its annual planning and budgeting process.

Growth Projects

Kinross does not expect to make a decision now on whether to proceed with a potential Tasiast mill expansion until 2015 at the earliest, regardless of the project feasibility study outcome. The study is expected to complete in the first quarter of 2014. The decision taken was a part of the company's focus on capital reduction in the current lower gold price environment.

At Dvoinoye, first ore from development activities was delivered to Kupol in the second quarter. The Kupol plant upgrade was successfully completed. Infrastructure construction for the project has progressed 73%. The project is progressing according to schedule, and is in line with the budget. The project is expected to reach targeted production in the fourth quarter of 2013.

Kinross ceased further development at its Fruta del Norte project, Ecuador on Jun 10, 2013, as it failed to reach an agreement with the Ecuadorian government regarding exploitation and investment protection agreements for the project.

Outlook

Kinross expects to produce about 2.4-2.6 million gold equivalent ounces from its current operations in 2013 and forecasts cost of sales of $740-$790 per gold equivalent ounce for the year.

Kinross narrowed its capital expenditures forecast to $1.45 billion from $1.6 billion in 2013. Kinross expects its all-in sustaining costs to be in the range of $1,100-$1,200 per gold ounce sold on a by-product basis in 2013.

Kinross currently carries a Zacks Rank #4 (Sell).

Another prominent player in the gold-mining industry, Goldcorp Inc. ( GG ), posted its second-quarter 2013 results on Jul 25. The company's adjusted earnings (excluding one-time items) of 14 cents a share missed the Zacks Consensus Estimate of 28 cents and was well below 41 cents earned in the year-ago quarter. On a reported basis, the company posted a net loss of $1.93 billion, compared to net earnings of $268 million in the prior-year quarter.

Other companies in the mining industry with a favorable Zacks Rank include Pretium Resources Inc. ( PVG ) and NovaGold Resources Inc. ( NG ). Both these stocks carry a Zacks Rank #2 (Buy).



GOLDCORP INC (GG): Free Stock Analysis Report

KINROSS GOLD (KGC): Free Stock Analysis Report

NOVAGOLD RSRCS (NG): Free Stock Analysis Report

PRETIUM RES INC (PVG): Free Stock Analysis Report

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



This article appears in: Investing , Business , Earnings , Stocks

Referenced Stocks: FDN , GG , KGC , NG , PVG

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