In an effort to give continuity to its mining activities at Tasiast in Mauritania, Kinross Gold Corporation (KGC, Financial) agreed to a new three-year collective labor agreement (CLA) with unionized employees and to the "Mauritanization" plan to promote the job integration of the indigenous population at Tasiast, with the government of Mauritania, a requirement under Mauritanian law.
Kinross resumed normal mining and processing operation in mid-August after the company and the government of Mauritania found a solution on the expatriate work permit issue, under Mauritanian law, on the number of local workers who have the necessary skills and experience to work at Tasiast.
The gold producer can proceed with the phase one expansion project. Once the first phase of the expansion of the open-pit mine is completed, Kinross expects a 50% increase in the tonnes of ore milled per day and approximately 409,000 ounces of gold produced at AISC of $760 per ounce by the end of the first quarter 2018:
Source: Kinross’ website
First gold production is expected to commence in 2018.
Kinross is also studying the possibility to further reduce costs and increase production at Tasiast by bringing the daily tonnes of ore milled at Tasiast from 12,000 (from phase one expansion project) to 30,000, which is expected to further reduce costs and increase production. The details of this project are reported in the pre-feasibility study for a Phase Two expansion.
The Tasiast lands fall within the Inchiri and Dakhlet Nouadhibou Districts and are located in northwestern Mauritania, approximately 186.4 miles north of the capital Nouakchott and 155.3 miles southeast of the major city of Nouadhibou.
Source: Kinross’ website
In the second quarter, Kinross reported an adjusted net loss of $9.8 million, or 0.01 cents per share (+200% year-over-year), revenue of $876.4 million, compared with $755.2 million (+16% year-over-year) and a net loss of $25.0 million, or 0.02 cents per share, (+71.4% year-over-year).
During the same quarter, the miner produced 671,267 gold equivalent ounces (Au eq. oz.) at AISC of $988/oz., compared to 660,898 Au eq. oz. at AISC $1,011/oz. in the second quarter of 2015. Adjusted operating cash flow was $187.2 million, or 15 cents per share, (+7.1% year-over-year).
As of second quarter 2016, Kinross had cash and short term investments of $968.20 million and a total liquidity of approximately $2.25 billion, which is considered to be sufficient to proceed with the Tasiast phase one expansion and fund the exploration activities.
The total, long-term debt amounted to $1,733.10 and with the payment of the current portion that was due September 2016, the miner has no long-term debt to pay until 2020. The company has extended the maturity dates of its $500 million term loan and $1,500 million revolving credit facility by one year, respectively, to Aug. 10, 2020 and Aug. 10, 2021.
For fiscal year 2016, the miner expects to produce 2.7 - 2.9 million of gold equivalent ounces (25% from Russian assets, 14% from West Africa assets and 61% from American assets), at a cost of sales per ounce of $675 - $735 and AISC per ounce of $890 - $990.
The 2016 capex guidance was increased to $755 million since the miner expects to spend an additional $160 million at Tasiast.
At the moment, Kinross is down 7 cents per share (or 1.96%) and it is trading around $3.53 per share on the NYSE versus an average analyst price target of $6.21. The stock gained 90% year to date, but it is down trending since the beginning of August.
The enterprise value/EBITDA is 8.12 and the price-book (P/B) ratio is 1.03.
On Sept. 26, the miner agreed to sell 5,500,000 common shares of Lundin Gold Inc. to GMP Securities L.P. at a share price of 5.60 Candian dollars ($4.25), for a consideration of CA$30,800,000. The sale closing date is expected to be today.
Disclosure: I have no position in Kinross Gold Corporation.
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