We have retained our Neutral recommendation on gold miner
Kinross Gold Corporation
). Higher production costs lead us to tread with caution.
KINROSS GOLD (KGC): Free Stock Analysis
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Kinross, on Feb 13, posted bigger loss on a reported basis in
fourth-quarter 2012, hit by higher impairment charges. However,
revenues and adjusted earnings beat the Zacks Consensus
Estimates. Revenues jumped 29% year over year, aided by higher
production and gold pricing.
Kinross is expected to continue to reap the benefits of higher
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 the Tasiast mine to 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
However, Kinross may see some difficult times in the near-term
due to increasing cash costs. The company's production cost of
sales per gold equivalent ounce rose 8% to $686 in the fourth
quarter (up 20% year over year in 2012) due to higher energy,
labor and consumables costs.
Production cost of sales per gold equivalent ounce for 2013 is
expected to be in the range of $740-$790, higher than $706
recorded in 2012. Lower grades across most of the company's mines
are expected to contribute to higher costs.
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. In addition,
macroeconomic issues could weaken the demand for gold.
Kinross currently carries a short-term (1 to 3 months) Zacks Rank
Other Stocks to Consider
Other companies in the gold mining industry having a favorable
Zacks Rank are
Sandstorm Gold Ltd.
Seabridge Gold, Inc.
Paramount Gold and Silver Corp.
). All of them carry a Zacks Rank #2 (Buy).