Kinross Gold Beats Q4 Expectations But Delivers Poor 2019 Outlook

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Kinross Gold (TSX: ) beat analysts’ top- and bottom-line expectations for the fourth quarter of fiscal year 2018 thanks to an increase in gold ounces sold and lower all-in sustaining costs. This helped it offset the year-over-year drop in gold prices.

The Toronto-based senior gold producer delivered $786.5 million in revenue and non-GAAP earnings per share of $0.01. Analysts were looking for $761 million in revenue and break-even earnings per share. Kinross’ operational performance for the fourth quarter and the entire year turned out to be commendable, though its guidance won’t inspire much investor confidence. Let’s take a look at the key points of the company’s latest report.

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Kinross’ Gold Production and Costs Disappoint

On a full-year basis, Kinross’ gold production of 2.45 million ounces was within the range of its original 2018 guidance. Its all-in sustaining costs of $965 per ounce were lower than the $975 per ounce estimate it had originally anticipated.

For the fourth quarter, Kinross’ attributable gold equivalent production stood at 610,152 ounces, an annual drop of 6.5%. However, gold sales increased slightly. But a drop in the average realized price of gold from $1,276 per ounce in the prior-year period to $1,226 an ounce this year ensured a 3% annual decline in the company’s top line.

Kinross is coming off a difficult year thanks to declining grades at some of its mines.

Kinross’ all-in sustaining cost per equivalent ounce of gold sold dropped from $1,019 per ounce in the fourth quarter of 2017 to $961 an ounce last quarter. Despite this, the company’s adjusted earnings fell nearly 17% year over year to $15.5 million. Additionally, Kinross swung to a reported net loss of $27.7 million during the quarter as compared to net earnings of $217.6 million in the fourth quarter of 2017.

In the end, it can be said that Kinross is coming off a difficult year thanks to declining grades at some of its mines such as Fort Knox, Round Mountain, and in Russia. The lower grades affected gold recoveries and negatively impacted Kinross’ cost profile for the full year. The company’s outlook further suggests that its costs won’t be coming down any time soon.

Gold Price the Only Positive in 2019 Outlook

Kinross expects its production will remain flat year over year.

Kinross expects to produce 2.5 million ounces of gold in 2019 at the mid-point of its guidance, indicating that its production will remain flat year over year. However, its all-in sustaining costs are expected to increase from $965 an ounce last year to $995 an ounce in 2019. The ramp-up of the Bald Mountain Vantage Complex project and weaker production at Fort Knox will be impacting the company’s production in the first quarter of the year.

A flat production profile and a bump in the costs will act as headwinds for Kinross once again in 2019, though the pain could be eased to some extent thanks to a potential rise in gold prices. The company’s average realized gold price per ounce was $1,268 an ounce last year. However, gold has been trending above $1,300 an ounce in the past few weeks, and it is expected to hold this price level according to some technical estimates.

Such a scenario could help Kinross deliver better-than-expected results as the company assumes a gold price forecast of $1,200 an ounce for 2019. Otherwise, investors shouldn’t expect any material improvement in the company’s performance as the guidance suggests.

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. Address: 682 Indian Road, Toronto, Ontario, M6P 2C9. Phone: 416-721-8257.

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