Kinross Gold Corp. (KGC, Financial) missed consensus on revenue in the second quarter of the year and the stock tumbled 4.2% to $3.42 per share at the end of regular hours trading on Thursday, Aug. 2.
The stock market didn’t like the loss. The quarterly revenue came in at $775 million, a 10.8% decrease year-over-year. While consensus was for a revenue of $825 million, the miss produced a negative surprise of 6%.
As a result, the stock is now trading at more compelling prices compared to a few days ago. That is indicated by a share price that is just 2 cents above the 52-week low of $3.42 and 44% from the 52-week high of $4.91 per share.
An additional indication of a convenient stock also stemmed from the chart below. According to GuruFocus, the current share price is underneath the 200, 100 and 50-SMA lines.
Despite a 3.7% year-over-year growth in the price the company realized from the sale of one ounce of gold, the company's revenue suffered a lower grade of ore that was generally processed during the quarter across the entire line of mines. As a matter of fact, the Canadian gold producer supplied the market with a lower volume of equivalent gold, which at 683,584 ounces, was a 14% decline year-over-year.
The sales volume was based on an output of 602,049 ounces of gold equivalent. The quarterly production went down 13.4% from the prior-year quarter. There was an increase in metal recovery rates from the heap leaching pads at Bald Mountain in Nevada. There was also higher production from Maricunga in Chile and Chirano in Ghana. But these efforts could not help production.
A number of issues impacted costs to the extent that the All-In-Sustaining-Cost, or AISC, reached $1,018 per ounce of equivalent gold sold nearly 12% higher on a year-over-year basis. As a result, the gold margin was also impacted. The company reported a year-over-year flat adjusted operating cash flow of $231.5 million and a 25% year-over-year decrease in the adjusted net profit of 3 cents per share. The adjusted net profit of $37.8 million was on par with expectations.
Looking ahead, except for the second phase of the project at the Tasiast mine in Mauritania, where expansion activities have been put on a stand-by, all the other projects should significantly start contributing to the company’s total production beginning in the middle of 2019 and the first quarter of 2020.
However, the real short-term catalyst to watch is the Phase One expansion of Tasiast Project in Mauritania. Last month, the mill facility reached its target capacity rate of 12,000 tons of material processed per day. This achievement should translate into a higher production.
Tasiast has already contributed a significant 8% to the total production of attributable gold equivalent in the second quarter of 2018. The miner has expressed a financial need of $300 million for the project. The International Finance Corporation intends to take part in a project financing for the exploitation of the Mauritanian site. The financial organization is a division of the World Bank.
The Canadian gold producer is also looking for growth opportunities in Chile over the long-term.
For full fiscal 2018, Kinross Gold is targeting a production of 2.375 million ounces of equivalent gold to 2.625 million ounces of equivalent gold. The target is for an AISC of $926.25 per ounce of equivalent gold sold to $1,023.75 per ounce of equivalent gold sold. Total capital expenditures are predicted to range between $1.021 billion and $1.129 billion.
To sustain the growth, Kinross Gold can rely on a solid balance sheet, which accounts for a total liquidity of approximately $2.5 billion. The company has one of the highest financial flexibilities in the industry since its first debt obligation will not mature before 2022. The total liquidity is composed by cash on hand of $918.7 million and by a line of available credit of $1.6 billion.
Kinross Gold at these prices represents an opportunity that should not be overlooked in the world of gold mining stocks. It is a company that has an extraordinary pipeline of projects for future growth. With the precious metal showing very promising signs of growth already for some time, I am convinced that Kinross Gold Corp. has all the ingredients to succeed in the coming trading weeks.
Wall Street holds a 2.4 recommendation rating on Kinross Gold out of a total of 5. The average target is $4.90 per share. From the current share price, there is a nearly 45% growth to take advantage of down the road.
In addition, the company has a total equity of $4.61 billion or $3.69 per share. The book value and the current market value resulted in a price-book ratio of 0.93 times versus an industry median of 2.06 times.
(Disclosure: I have no positions in Kinross Gold Corp.)
