ABX Barrick Gold Corp. (BC) (delisted)

Gold miner Kinross Gold Corporation (KGC) reported record adjusted net income of $180.3 million or $0.16 per share in the first quarter of 2011, above last year’s $99.7 million or $0.14 per share, outpacing the Zacks Consensus Estimate of $0.14.

GAAP net earnings were $255.5 million or $0.23 per share in the first quarter of 2011 compared with $181.3 million, or $0.26 per share in the prior-year quarter.

Quarterly revenues leaped 42% to $937.0 million, driven by strong performance at all operations, new production from West Africa, and a robust gold price contribution. 

Gold production increased 18% year over year to 642,857 ounces in the first quarter of 2011 with an average realized gold price of $1,327 per ounce sold compared with $1,065 per ounce sold in the prior-year quarter. The increase was mainly due to the addition of production from the West Africa operations. Production cost per gold equivalent ounce was $543 versus $456 in the prior-year quarter. Production costs per ounce were lower than expected, despite upward pressure on input costs.

Kinross margin per ounce sold was a record $784 during the quarter, up 29% year over year.

Financial Review

In first-quarter 2011, adjusted operating cash flow was $397.6 million, up 67% year over year. Adjusted operating cash flow per share was $0.35 during the quarter versus $0.34 in the prior-year quarter.

Capital expenditures were $255.9 million during the quarter compared with $94.1 million for the same period last year.

On March 31, 2011, the board of directors paid a dividend of $0.05 per share to shareholders of record as of March 24, 2011.

On March 31, 2011, Kinross announced it had amended its unsecured revolving credit facility, increasing the available credit from $600 million to $1.2 billion. Kinross' cash and cash equivalents were $1,560.8 million as of March 31, 2011.

Company Update

Kinross’s Tasiast feasibility study is 62% complete and remains on schedule for completion in mid-2011. A total of 135,000 metres have been drilled since the beginning of the year and results continue to meet or exceed expectations. Reconnaissance drilling has yielded encouraging results at two different targets along the Tasiast trend outside the main Tasiast deposit.

Kinross' growth projects remain on schedule. At Fruta del Norte, construction of the portal high wall for the underground exploration decline has commenced, and negotiations with the Ecuadorian government on an exploitation agreement are proceeding. At Lobo-Marte, exploration on the Valy prospect has produced encouraging results, including discovery of two new mineralized zones. At Dvoinoye, construction of the mine portal is complete, and development of the exploration decline advanced 100 metres in the first quarter. At Paracatu, the third ball mill is 98% complete, with commissioning continuing through the second quarter.

On April 27, 2011, Kinross' 75%-owned subsidiary, Chukotka Mining and Geological Company (CMGC), completed the purchase of the 25% of CMGC that Kinross did not own for a total gross consideration of approximately $350 million, giving Kinross 100% ownership of the Kupol mine and the Kupol East-West exploration licences.

On March 23, 2011, Kinross completed the sale of its approximate 8.5% equity interest in Harry Winston Diamond Corporation for net proceeds of $100.6 million.

Kinross appointed Paul H. Barry as Executive Vice-President and Chief Financial Officer, effective April 4, 2011.

Outlook

Kinross increased its 2011 production forecast from 2.5–2.6 million to 2.6-2.7 gold ounces after the company expanded its ownership in the Kupol mine to 100%.  The average cost of sales per gold equivalent ounce remains $565 – $610. Kinross also expects higher costs as a result of increased energy and labor costs, and lower average grades.

The company now expects to produce approximately 535,000-555,000 gold equivalent ounces at its Russian region in 2011 compared with its previous forecast of 435,000-455,000 attributable gold equivalent ounces

By 2015, Kinross expects production to grow to 4.5-4.9 million ounces, as new projects start up in 2013 and 2014. With new studies completed at Tasiast, FDN, Lobo-Marte, and Dvoinoye, Kinross is making significant and steady progress in advancing the projects that give the company the best growth profile among senior gold producers.

Zacks Recommendation

Kinross Gold Corporation, like other gold producers, Barrick Gold Corporation (ABX) and Newmont Gold Mining (NEM), benefits from rising gold prices. We expect Kinross’ exploration projects and acquisitions to boost its top line going forward.

Currently, Kinross Gold has a short-term (1 to 3 months) Zacks #3 Rank (Hold) and a long-term Neutral recommendation.

 
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