Kinross Gold Isn’t Out of the Woods Yet

Kinross Gold delivered a mixed set of results for the first quarter of fiscal 2019, beating Wall Street’s earnings estimates by a nice margin but falling well short of revenue expectations.

It wasn’t surprising to see Kinross Gold delivering such mixed results as the company has been pegged back by weak gold grades at some of its assets. Let’s take a closer look at what happened with Kinross last quarter and if it is capable of making a comeback.

 

The Numbers Aren’t Pretty

Kinross Gold’s revenue fell 12.4% year over year to $786.2 million during the first quarter, missing the consensus estimate by a margin of $14.5 million. This substantial annual drop in the top line was a result of a decline in Kinross’ output.

The company produced 606,031 ounces of gold during the quarter as compared to the prior-year period’s production of 653,937 ounces. Thanks to the lower production Kinross Gold’s sales dropped from 668,217 ounces in the first quarter of 2018 to 597,649 ounces last quarter, which is a decline of more than 10%.

Given that Kinross’ average realized gold price per ounce fell to $1,304 an ounce as compared to $1,330 an ounce in the prior-year period, it isn’t surprising to see its top line taking a big hit. However, Kinross’ results had a silver lining in that the company managed to keep its costs well under control.

Its production cost of sales per gold equivalent ounce came in at $682 during the quarter, lower than the company’s full-year guidance of $730. The all-in sustaining cost of $925 per gold equivalent ounce was also lower than the full-year forecast of $995.

But its focus on keeping a handle on costs, Kinross Gold’s bottom line was down big time year over year. The company delivered adjusted earnings of $83.3 million during the quarter, down from $125.2 million in the prior-year period.

In all, Kinross Gold had a terrible quarter. But will the company be able to stage a comeback?

 

What Next for Kinross Gold?

Kinross claims that it delivered a strong operational performance during the quarter, but the numbers speak otherwise. Of course, it kept costs lower than full-year expectations, but investors shouldn’t forget that it is incurring higher expenses this year.

The company does say that it is on track to meet its full-year guidance on all counts, but that’s probably not going to drive much in terms of financial gains.

In the year-ago period, Kinross’ production cost of sales per gold equivalent ounce was $658, while all-in sustaining costs stood at $846 an ounce. As a result, Kinross Gold’s margin per gold equivalent ounce sold fell to $622 during the first quarter from $672 a year ago.

The company does say that it is on track to meet its full-year guidance on all counts, but that’s probably not going to drive much in terms of financial gains.

Analysts, for instance, expect Kinross Gold’s top line to remain flat this year, while earnings will increase by two cents to $0.12 per share as compared to last year. But if Kinross doesn’t improve its production meaningfully in the second half of the year, its results might turn out to be worse, knocking some wind out of the stock’s sails.

The opinions provided in this article are those of the author and do not constitute investment advice. Readers should assume that the author and/or employees of Capital 10X hold positions in the company or companies mentioned in the article. For more information, please see our Content Disclaimer.

Harsh Singh Chauhan
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.

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