Neutral on Kinross Gold - Analyst Blog

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We maintain our Neutral recommendation on Kinross Gold Corporation ( KGC">KGC ), primarily involved in the exploration and operation of gold mines.Kinross currently ranks among the top 10 gold mining companies in the world, with a targeted production of 2 million oz of gold annually. The company is also engaged in producing and selling silver.

Kinross Gold reported record adjusted earnings per share of $0.24 in the third quarter of 2011, outpacing theZacks Consensus Estimate of $0.21. Strong performances atKupol ,Maricunga , and West African operations amid continuing strong gold prices drove the result.

Kinross benefits from higher gold prices, exploration projects and acquisitions. The company has cleared its hedge book and thus stands fully leveraged to spot gold prices. Generally, higher gold prices flow directly to its top line.

Gold price is the single largest factor in determining profitability and cash flow from operations. The average realized gold price was up to $1,646 per ounce sold in the third quarter of 2011 compared with $1,190 per ounce sold in the prior-year quarter.

Kinross is extending itsTasiast feasibility study to analyze and incorporate this new drill data into the project scope, while exploring infrastructure development options to reduce project capital costs, which have been subject to industry-wide cost pressures.

The feasibility study extension is not expected to impact the project's development schedule, which remains as previously disclosed, with construction expected to commence in mid-2012 and production start-up targeted for early 2014. Drilling atTasiast has upgraded 6.4 million gold ounces of inferred resource to measured and indicated mineral resource categories, while adding approximately 2.9 million gold ounces to the total mineral resource inventory.

Recent drill results from within the West Branch andPiment zones also indicate significant new opportunities beyond those incorporated in the initial project scoping study, including potential for supplemental heap leach production and a potential new zone ofmineralization that, if fully delineated, may result in an expansion to the proposed pit.

Kinross' other growth projects remain on track.Fruta del Norte (FDN ), the underground exploration, is advancing on schedule and negotiations with the Ecuadorian government for an exploitation contract will continue. It is expected to be completed in 2013.

AtLobo-Marte , approximately 70% of the 20,000 meter drilling and feasibility study is now complete. The equipment will be re-deployed to drilling programs atValy andMarte Northwest. The project feasibility study is on schedule for completion at the end of 2011.

AtDvoinoye , development of the exploration decline and the construction of surface facilities are advancing as planned. AtParacatu , the third ball mill was successfully commissioned and construction of the fourth ball mill is proceeding as planned.

Recent exploration results have been highly encouraging, including positive results atPompeya andPurén West at LaCoipa ; continued positive results atValy (Lobo-Marte ); and indications of deepmineralization beneath theObra pit atChirano .

At the CerroCasale project in Chile, the Environmental Impact Assessment was submitted in the third quarter. The permitting process is anticipated to take approximately 18 months. During this period, the joint venture will consider a construction decision and commence detailed engineering.

We expectKinross' exploration projects and acquisitions to boost its top line in the long term. Production is expected to grow to 4.5-4.9 million ounces by 2015.Kinross is making significant and steady progress in advancing the projects that give the company the best growth profile among senior gold producers. However, we are concerned aboutKinross' earnings volatility and lower gold reserve base. Higher mining and administrative costs should further constrain margins in the near term. For now, we reiterate our Neutral recommendation.

Kinross Gold Corporation, like other gold producers,  Barrick Gold Corporation  ( ABX">ABX ) and  Newmont Gold Mining  ( NEM">NEM ), benefits from rising gold prices. We expectKinross' exploration projects and acquisitions to boost its top line going forward.

Currently,Kinross Gold has a short-term (1 to 3 months)Zacks #3 Rank (Hold) and a long-term Neutral recommendation.


 
BARRICK GOLD CP ( ABX ): Free Stock Analysis Report
 
KINROSS GOLD ( KGC ): Free Stock Analysis Report
 

NEWMONT MINING ( NEM ): 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 , Stocks

Referenced Stocks: ABX , KGC , NEM

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