Kinross Gold Corporation: Spending Discipline Continues To Grip

Production edges higher in Q3
Kinross Gold Corporation, (KGC) has delivered increased q-o-q gold production in Q3 of 681koz, but a low gold price has continued to drag down financial results. Q3 production was bolstered by a record 122koz from its Fort Knox mine in Alaska, which has improved its heap leach performance and commissioned a second carbon-in-column plant, and 135koz from its Paracatu mine in Brazil. Operating cost pressures are ever present and Kinross will continue its capital allocation programme, which has cut capital spend and prioritised high-margin production.

Q3 production up, but financials down on gold price
A 4% q-o-q increase in Q3 production was outweighed by a lower gold price (down by 4.5%) for a 9.5% drop in revenue to US$876.3m. All-in sustaining costs were flat at US$1,069/oz. Adjusted earnings fell 54% to US$54.4m.

Dvoinoye adds high-margin ounces
Commercial production began in Q413 at the Dvoinoye mine in Russia, which has become a priority under the capital allocation programme. Management expects Dvoinoye to produce 235,000-300,000oz AuEq a year for the first three full years of operation, representing a 10% increase in group production based on expected FY13 numbers. Dvoinoye ore will be fed into the Kupol processing facilities, where the mill has been expanded from 3,500tpd to 4,500tpd to take the extra throughput. Cash costs of US$545-600/oz AuEq are expected from the Russian mines. Dvoinoye is expected to contribute about 25,000oz AuEq to 2013 production.

FY13 guidance increased to 2.6-2.65Moz AuEq
Kinross has increased FY13 attributable production guidance to 2.6-2.65Moz AuEq, up from 2.4-2.6Moz AuEq, leaving 616-666koz to come from Q4. The company expects to register figures at the lower end of both its cost of sales guidance range (US$740-790/oz AuEq) and its all-in sustaining cost forecast (US$1,100-1,200/oz AuEq sold), which indicates Q4 operating costs should remain relatively flat on Q3.

Valuation: Spending discipline continues to grip
Targeted capital expenditure for 2013 was US$1.6bn (down 16% on FY12), which has been periodically revised down over the year to US$1.4bn. Savings have come from project deferrals, optimisations and general G&A cuts. Kinross trades at a FY13 P/E of 13.6x which is in line with the NYSE Arca Gold BUGS index.

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