Kinross Gold Quarterly Results Tell Us Why It Can Soar Higher


Kinross Gold’s [stock_market_widget type="inline" template="generic" color="default" assets="K.TO" markup="(TSX: {symbol} {currency_symbol}{price} ({change_pct}))" api="yf"] solid run on the stock market is all set to continue as the company crushed Wall Street estimates for the fiscal second quarter of 2019. This was not surprising as Kinross went into the second-quarter results with impressive tailwinds in the form of strong gold pricing and a strict control on costs.

Let’s take a closer look at what’s working for Kinross and if it can sustain its momentum in the coming months.

Strong Quarterly Results Have Boosted Kinross Stock

Kinross Gold stock is up nearly 40% in 2019 after a tepid start to the year, and it is likely that it will keep going up based on its latest results.

The company’s gold equivalent production for the second quarter came in at just over 648,000 ounces of gold, up from 602,000 ounces in the year-ago period. Thanks to the higher production, Kinross was able to place more gold equivalent ounces on sale during the quarter.

Kinross’ average realized gold price for the quarter came in at $1,307 an ounce, in line with the year-ago period. But the most important thing to note about Kinross during the quarter was that the company’s cost profile improved big time.

Kinross Gold’s production cost of sales per gold equivalent ounce came in at $663 for the second quarter. This was a significant decline over the year-ago period’s figure of $767 an ounce. Kinross attributes this massive decline in the cost profile to lower costs at the Tasiast, Round Mountain, and Paracatu mines.

More specifically, Kinross enjoyed stronger grades at these mines, especially at Paracatu. The higher grades meant that Kinross had to mine less amount of waste tonnage during the quarter, which led to lower costs.

Kinross Makes a Smart Move to Boost Production

Kinross management is looking to step on the gas to take advantage of an improvement in gold prices.

The company has announced that it will spend $283 million to acquire a high-grade gold project in Russia that’s expected to run at a low cost base. According to the press release, the Chulbatkan project carries favourable characteristics such as:

Large, high-grade, near-surface resource with potential to support a low-cost, low-strip, high-return, open-pit, heap leach operation. Estimated indicated resource of approximately 3.9 million ounces of gold and estimated inferred resource of 80,000 ounces of gold.

This is a smart move from Kinross given that the price of the yellow metal has been on the rise of late. Gold is trading around $1,440 an ounce, and it is expected to rise higher given the prevailing macroeconomic conditions.

According to the Pepperstone Group, the price of gold still has a lot of room to run higher. As reported by Kitco:

“If this case plays out that we see this central bank easing to the extent that the swaps and rates markets are pricing, and I think you’d be looking at those 2011 lows at around $1,520 [an ounce] as your 12-month, 15-month price target,” Weston told Kitco News.

Considering the improvement in Kinross’ production profile and the improving gold price scenario, it makes sense to stay long the stock as it can soar higher.

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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