Kinross Gold Corp. (KGC, Financial) closed the third quarter reporting adjusted net earnings per share of $128.7 million, or 10 cents per share, 1,100% higher than its second quarter (-1 cent) and 600% higher than its third quarter of 2015 (-2 cents).
Kinross Gold beat analysts’ expectations on third quarter adjusted net EPS by 12 cents.
Source: Yahoo Finance
Concerning revenue for the third quarter, Kinross Gold reported revenue of $910.2 million, a 12.5% increase on a year-over-year basis, and missed analysts’ expectations with $4.98 million. In third-quarter 2015 the gold producer reported revenue of $809.4 million.
Source: Yahoo Finance
During the third quarter, Kinross Gold reported strong production that together with an increase in the price of the underlying precious metal helped the miner deliver substantial results in terms of increased adjusted cash flow from operating activities and adjusted net earnings:
"Our portfolio of mines continued to deliver consistent and solid operational performance in the third quarter. Strong production, combined with a higher gold price, increased adjusted operating cash flow by 55% and adjusted net earnings by $153 million, year over year.” – J. Paul Rollinson, president and CEO, commentary on third-quarter results
Kinross is one of the gold mining companies that is benefiting the most from rising gold prices that are characterizing 2016, pushed by the decision of the Federal Reserve Board to keep interest rates low. As it was for the first part of the year and in particular for the second quarter when a 5.6% increase in the price of gold on a year-over-year basis helped the company improve both the bottom line and cash flow from operating activities, it was the same for the third quarter.
The average quarterly price of gold increased nearly 19% on a year-over-year basis, from $1,124.996 per troy ounce in third-quarter 2015 to $1,334.932 per troy ounce in the third quarter of 2016. Kinross closed the third quarter delivering consistent and solid adjusted cash flow from operations and adjusted net earnings.
In the third quarter, adjusted operating cash flow increased 55% on a year-over-year basis, from $206.6 million in third-quarter 2015 to $320.3 million in third-quarter 2016.
The increase in the average realized gold price, 19% on a year-over-year basis, from $1,122 per ounce in third-quarter 2015 to $1,336 per ounce in third-quarter 2016, made it possible for the miner to continue to improve the bottom line.
In the third quarter net earnings – which include a noncash impairment charge of $68.3 million for property, plant and equipment and an inventory write-down of $71.3 million – was $2.5 million, or zero dollars per share, compared with a loss of $52.7 million, or -5 cents per share, in third-quarter 2015. That is an increase of 5 cents on a year-over-year basis.
During the third quarter, Kinross dug up gold at higher costs compared to the same quarter of the previous year. The miner produced 684,129 gold equivalent ounces, compared to 680,679 gold equivalent ounces in the third quarter of 2015, at all-in-sustaining cost per gold equivalent ounce sold of $1,100 compared to $941 in the third quarter of 2015, and at all-in-sustaining cost per gold ounce sold on a byproduct basis of $987, compared to $936 in the third quarter of 2015. Production cost of sales was higher as well: $719 per gold equivalent ounce in the third quarter compared with $668 in third-quarter 2015.
For the fourth quarter of the year lower production at higher costs per ounce is expected from Kinross as the gold producer “is tracking toward the lower half of its 2016 guidance range for production (2.7 million to 2.9 million gold equivalent ounces) and the upper half of its guidance range for production cost of sales ($675 to $735 per gold equivalent ounce) and all-in-sustaining cost ($890 to $990 per gold equivalent ounce).”
As of the third quarter, Kinross has a total liquidity of approximately $2.2 billion, composed with cash and cash equivalents of $756.4 million (-27.5% since Dec. 31, 2015) and available credit of $1,427.2 million that, together with the absence of long-term debt to be repaid before 2020, is considered to be sufficient to proceed with the Tasiast Phase One expansion and fund the exploration activities.
At Tasiast (Ghana), Phase One expansion is advancing as scheduled, and the Russian projects are expected to be brought into production between the first quarter of 2017 and first half of 2018:
“The Tasiast Phase One expansion project is proceeding well, and a feasibility study for the Phase Two expansion is expected to be completed in third-quarter 2017.
“Bald Mountain received a Record of Decision that allows increased exploration and mining activities, which commenced in the quarter, and provides significant flexibility for future growth and expansion. A pre-feasibility study for the Vantage Complex is expected to be completed in second-quarter 2017.
“The Russian development projects – September Northeast near Dvoinoye and Moroshka near Kupol – are expected to commence mining in first-quarter 2017 and the first half of 2018.
“A feasibility study for Round Mountain's Phase W project is expected to be completed in third-quarter 2017.” – Kinross’ third-quarter report
Kinross reviewed its guidance on capex and has reduced it to a range of $650 million to $675 million, -12.25% from the previous forecast.
The stock closed at $3.90 per share Wednesday, down 0.10 or -1.52% from the previous trading day and before the release of the third-quarter results, with a volume of 18,947,026 shares traded on the New York Stock Exchange. The share price is up 106% year to date:
Kinross’ price-book (P/B) (mrq) is 1.14, and EV/EBITDA is 7.69. With an average target price of $5.78, analysts forecast a 46% upside in the share price at current levels.
Disclosure: I have no position in Kinross Gold.
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