Kinross Gold Gains on Earnings Beat

Miner also beat revenue expectations

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Kinross Gold Corp. (KGC, Financial) released its financial results for the third quarter after the market closed Nov.8.Â

The Canadian gold miner posted adjusted EPS of seven cents (an adjusted net profit of $84.1 million), compared to an adjusted EPS of 10 cents (an adjusted net profit of $128.7 million) in the prior-year quarter. The company beat earnings estimates by five cents.

Revenue for the quarter came in at $828 million, beating expectations by $61.29 million but declining 9% from the year-ago quarter.Â

The stock gained 3.83% in after-hours trading following the announcement.

The company said sales declined because a lower volume of gold was sold on a consolidated basis (645,235 ounces of gold equivalent versus 680,327 ounces of gold equivalent in third-quarter 2016) and a lower price was realized from the sale of one ounce of gold ($1,283 per ounce versus $1,336 per ounce in third-quarter 2016).

The lower sales were the result of lower production. The Canadian miner produced a total volume of 660,564 ounces of gold, down from 690,311 ounces in the prior-year quarter.

Despite a lower gold price, the gold margin (average realized gold price per ounce minus production cost of sales per ounce) increased 0.65% year over year to $621 per ounce due to lower cost of sales per ounce sustained by the miner at its Round Mountain, Bald Mountain and Fort Knox operations.

The company generated $229.7 million in operating cash flow during the quarter, declining from an operating cash flow of $288.2 million in the prior-year quarter. The net amount of funds used by Kinross for investing activities increased 25% to $233.8 million, which includes $204.7 million for property, plant and equipment expenses.

The all-in sustaining cost (AISC) per ounce of gold sold declined 6.4% to $937.

For full fiscal 2017, Kinross Gold says operations are on track to meet 2.7 million ounces of equivalent gold, which is the upper limit of the production guidance (the lower limit is 2.5 million ounces). While costs are expected to meet the lower guidance limit, the AISC is expected to be around $925 per ounce of equivalent gold and production costs of sales are forecasted to be $660 per ounce of equivalent gold. Funds used by the company as sustaining and growth capital expenditures are forecasted to range from $855 million to $945 million.

As of the third quarter, the company had $992.1 million in cash on hand and securities and a $1.512 billion line of credit, bringing the total liquidity to approximately $2.5 billion. The Canadian mining company has $1.732 billion in total long-term debt for a debt-equity ratio of 39.2% versus an industry average of 174.40%. This means Kinross Gold’s business is, on average, less leveraged than its peers. Furthermore, the company says there are “no scheduled debt repayments until 2021.”

President and CEO J. Paul Rollinson commented on the company's projects:

"Development at our suite of organic projects continues to proceed well. Tasiast Phase One is on track for full commercial production towards the end of Q2 2018 and engineering at Phase Two is now 25% complete. We also expect to start construction at Tasiast Phase Two, Round Mountain Phase W and the Vantage Complex at Bald Mountain early next year, as initial development work at all three projects is already in progress.”

Kinross Gold is trading around $4.18 on the New York Stock Exchange with a market capitalization of $5.22 billion, a price-book (P/B) ratio of 1.18 and an EV/EBITDA ratio of 5.28, according to GuruFocus.

Currently, it appears this gold stock is not one of the cheapest on the market since it is trading 15% below its 52-week high of $4.91, while its 52-week low is $2.88.

When we take into consideration the 50- and 200-day simple moving average, we can see – in the chart below – Kinross Gold is trading above the 200-day SMA, but below the 50-day average price:
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Furthermore, according to the RSI (the Relative Strength Indicator), we cannot determine if the stock is going to fall.

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Year to date, Kinross Gold has gained 34%.

With an average target price of $5.24, which still represents a generous 25.4% upside from the current value, analysts see catalysts for the remainder of fiscal 2017.

Rollinsin said the company is "continuing to deliver and [has] strong operational momentum as we head into year end."

In addition, Kinross reported it had 31 million ounces of proven and probable gold reserves as of Dec. 31, 2016. The EVO – the enterprise value per ounce of gold reserve – is $191.61.

Disclosure: I have no positions in Kinross Gold Corp.