Gold miner Kinross Gold Corporation (KGC) reported an adjusted net income of $273.4 million or 24 cents per share in the third quarter of 2011, above last year’s $116.8 million or 15 cents per share, outpacing the Zacks Consensus Estimate 21 cents per share.
GAAP net earnings were $212.6 million or 19 cents per share in the third quarter of 2011 compared with $540.9 million, or 71 cents per share in the prior-year quarter.
Quarterly revenues leaped 45% to $1,069.2 million, due to an increase in total ounces produced and a higher average realized gold price.
Gold production increased 13% year over year to 647,983 ounces in the third quarter of 2011 with an average realized gold price of $1,646 per ounce sold compared with $1,190 per ounce sold in the prior-year quarter.
The increase was mainly attributable to the addition of production from the Kupol and the West Africa operations. Production cost per gold equivalent ounce was $634 versus $517 in the prior-year quarter. Production costs per ounce increased mainly due to a rise in labor costs, diesel and power costs, and royalties.
Kinross margin per ounce sold was $1,012 during the quarter, up 50% year over year due mainly to higher realized gold price.
Financial Review
In third-quarter 2011, adjusted operating cash flow was $421.6 million, up 82.1% year over year. Adjusted operating cash flow per share was 37 cents during the quarter versus 30 cents in the prior-year quarter.
Cash and cash equivalents were $1,874.6 million as of September 30, 2011 compared with $1,466.6 million as of December 31, 2010.
Capital expenditures were $395.0 million during the quarter compared with $150.7 million for the same period last year.
Growth Projects
Tasiast expansion project-Key project development activities at Tasiast are proceeding on schedule. Work on the expansion project feasibility study continues and is expected to be completed at the end of the first quarter of 2012. Production is targeted for mid-2014.
Dvoinoye-Key project development activities at Dvoinoye are proceeding on schedule. The feasibility study is expected to be completed in the first quarter of 2012, and the processing of Dvoinoye ore remains on target to commence in the second half of 2013.
Paracatu ball mills-Engineering on the fourth Paracatu ball mill was 90% complete and procurement was at 98% as of the end of September. Construction progress was 20%, with both concrete and structural steel approximately 68% and 40% complete, respectively.
Pre-assembly of the mill has commenced and ball mill installation will commence in December. The project is expected to be operational in the third quarter of 2012, as envisioned in the mine plan.
Maricunga SART plant-Construction of the Maricunga SART (Sulphidization, Acidification, Recycling and Thickening) plant is expected to re-start in late November. The re-start of construction will happen later than originally planned, as the construction camp was damaged by severe winter storms and requires repair work. The SART project is now targeted for expected completion in the first half of 2012.
Kinross’ other growth projects remain on track.
At Fruta del Norte (FDN), development of the underground exploration decline at Fruta del Norte (FDN) is continuing and is on target for expected completion in 2013.
At Lobo-Marte, drilling for the feasibility study is now complete, and equipment will be re-deployed to drilling programs at Valy and Marte Northwest. The project feasibility study is on schedule for completion at the end of 2011.
At the Cerro Casale project in Chile, the Environmental Impact Assessment was submitted in the third quarter. The permitting process is anticipated to take approximately 18 months, during which time the joint venture will consider a construction decision and commence detailed engineering.
Exploration Projects
Further drilling and exploration at Tasiast continue to increase the company’s confidence in the orebody and define new areas for potential growth.
In Chile, drilling at the Pompeya target at La Coipa led to the discovery of a significant area of mineralization close to surface and drilling to further define this new zone will continue in the fourth quarter of 2011.
Outlook
Kinross remains on track to produce 2.6 – 2.7 million attributable gold equivalent ounces in 2011. The average cost of sales per gold equivalent ounce is expected within the previous guidance range of $565 – $610.
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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