Avoid Kinross Gold Going Into Q1 Earnings


Shares of Kinross Gold [stock_market_widget type="inline" template="generic" color="default" assets="K.TO" markup="(TSX: {symbol} {currency_symbol}{price} ({change_pct}))" api="yf"] have rallied remarkably in the past six months, rising close to 23% as the gold pricing scenario has improved. However, the rally doesn’t seem to be justified as Kinross’ outlook for 2019 wasn’t very appealing.

Kinross Gold is suffering on account of declining grades at mines such as Round Mountain and Fort Knox, as well as from its assets in Russia. This has caused weakness in the company’s output and has also led to higher costs. Considering all these headwinds, Kinross Gold faces a difficult task of keeping investor sentiment high when it releases its fiscal first-quarter results on May 7.

What to Expect From Kinross

Kinross’ top line is expected to drop nearly 11% year over year during the first quarter, and its earnings per share will fall to just $0.02 from $0.10 in the year-ago period. However, it won’t be surprising to see Kinross beat the market’s expectations for two reasons.

Kinross expects its 2019 production to be identical to last year’s levels at 2.5 million ounces. So there’s a chance that its production would remain identical on a year over year basis. At the same time, the company had recorded an average selling price per ounce of $1,330 in the first quarter of 2018.

The company has already warned that its production for the first quarter would be lower on account of weak output at Fort Knox.

The price of gold has averaged close to that level in the first quarter of 2019, which is a good thing for Kinross. But then, investors need to note the fact that the company had managed to place more gold ounces for sale last in the prior-year period. It had sold nearly 675,000 ounces of gold a year ago, so if it doesn’t clock an identical number this time because of lower production, the company’s financials will take a hit.

In fact, the company has already warned that its production for the first quarter would be lower on account of weak output at Fort Knox.

Similarly, Kinross’ bottom line could take a hit on account of an increase in costs. The company is looking at $995 an ounce in all-in sustaining costs this year as compared to the year-ago period’s figure of $965 an ounce.

For comparison, Kinross’ all-in sustaining cost per ounce of gold sold stood at $846 an ounce in the first quarter of 2018. As such, the company faces an uphill task when it releases its next set of results, and this is a tone that might be seen for the rest of 2019.

Avoid Kinross

For 2019, Kinross gold anticipates production of 2.5 million ounces, which is in line with last year’s production. However, as we saw earlier, its costs are expected to rise year over year. This is why Kinross is not a good way to take advantage of a potential improvement in gold prices.

The flat production and increased costs will handicap the company’s ability to boost its margins and revenue this year, which is why analysts are also expecting a flat performance. As such, it would be prudent for investors to book their gains in Kinross and instead focus on other gold equities that could deliver an improved financial performance this year.

Harsh Singh Chauhan has a wealth of experience evaluating publicly-traded companies across several verticals, including technology, oil and gas, retail, and consumer goods. His financial writing has been published across platforms such as The Motley Fool, TheStreet, and Seeking Alpha. Harsh's philosophy is to find great businesses for the long run based on company fundamentals and industry prospects. Address: 682 Indian Road, Toronto, Ontario, M6P 2C9. Phone: 416-721-8257.


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