Kinross Gold (KGC) Poised On Expansion, Cost Actions

On Aug 30, we issued an updated research report on gold miner Kinross Gold (NYSE:KGC) .

Kinross recorded lower loss on a reported basis in second-quarter 2016. Adjusted loss missed the Zacks Consensus Estimate. However, revenues rose by double digits on higher gold volumes and prices and beat expectations. Kinross backed its gold production guidance for 2016. The company expects to produce roughly 2.7–2.9 million gold equivalent ounces this year.

Kinross is making steady progress in advancing its key projects that will contribute to its future growth. At the Tasiast mine in Mauritania, Kinross restarted normal mining and processing operation in mid-Aug 2016, after the temporary suspension caused by the expatriate work permit issue. The company has also secured two main construction contracts related to earthworks and concrete works for the Phase One expansion project at Tasiast. The Phase One expansion is expected to increase mill throughput capacity from 8,000 tons per day to 12,000 tons per day.

The company’s recent Nevada assets acquisitions also has significant upside potential. At Bald Mountain mine in Nevada, Kinross has received a record of decision from the U.S. Bureau of Land Management to allow increased exploration activities and the mine's potential expansion. The decisions entitle the company to expand existing mine facilities and offers considerable flexibility for future growth.

Kinross is focused on developing two sets of deposits, the Vantage Complex and Yankee pits in the South area, and the Saga and Duke pits in the North area. Developing these deposits may considerably increase the current 1.1 million gold ounce mineral reserve estimate at Bald Mountain and extend the life of the mine.

Kinross should also gain from its cost management initiatives. Its all-in sustaining cost per gold equivalent ounce sold declined to $988 in the second quarter from $1,011 a year ago. The company is actively managing its operating expenses. Its cost management actions helped it to generate free cash flows of more than $200 million in the second quarter.

The company has also maintained its focus on capital discipline. Kinross's capital spending for 2015 was $610 million, lower than $631.8 million in 2014 as well as the company’s guidance of $650 million. It expects capital expenditure in 2016 to be less than $755 million and has spent $254 million of this in the first half of the year.

That said, Kinross remains exposed to a sluggish global economy and volatility in gold prices. While gold prices have recovered this year and are currently hovering above the $1,300 an ounce level, they remain volatile. Increased speculations over a near-term rate hike by the Federal Reserve and a stronger dollar have weighed on gold prices of late.

Kinross also recently said that it has suspended mining operations at the Maricunga mine in Chile. The company has implemented the suspension earlier than planned after a judicial decision in Chile concluded that the country's environmental regulatory authority's ("SMA") revised Jun 24, 2016 sanction was enforceable. This sanction, along with other things, led to reduced water pumping at Maricunga, thus leading to the suspension.

Kinross is reducing its mining and crushing workforce at the mine by around 300 employees due to the suspension. Nevertheless, the suspension is not expected to impact the company's 2016 production and cost guidance.

Kinross has a Zacks Rank #3 (Hold).

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Other Stocks to Consider

Better-ranked stocks in the gold mining space include AngloGold Ashanti Ltd. (NYSE:AU) , B2Gold Corp. (NYSE:BTG) and New Gold, Inc. (TO:NGD) , all sporting a Zacks Rank #1 (Strong Buy).

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