On Nov 19, we maintained our Neutral recommendation on Kinross Gold Corporation (KGC). While the gold miner should benefit from its exploration projects, we remain on the sidelines considering the current weak gold price and demand environment.
Why Held?
Revenues and profit for third-quarter 2013, reported on Nov 13, slid year over year on lower gold prices. However, both sales and adjusted earnings beat Zacks Consensus Estimates. Kinross saw higher gold production in the quarter and raised its production guidance for 2013.
Kinross, a Zacks Rank #3 (Hold) stock, is making steady progress in advancing the projects that give it a strong growth profile among leading gold producers. Also, the company has streamlined its capital expenditure program, focusing on its priorities and not going overboard in its expansionary moves.
Kinross possesses the Tasiast gold deposit which has 20 million ounces of mineral resource base under its jurisdiction. The company is conducting a full feasibility study on the Tasiast expansion project with completion expected in the first quarter of 2014. Moreover, construction of the Dvoinoye mine in Russia completed on time and within budget and commercial production started in Oct 2013.
Kinross is also accelerating its cost reduction efforts and has further reduced its capital expenditure guidance for 2013 by $50 million to roughly $1.4 billion. This is in addition to $150 million savings announced earlier. The company has also identified savings opportunities on the general and administrative costs front.
However, the gold price environment is not favorable of late. Kinross has suspended its semi-annual dividend considering the weak gold price environment and its negative impact on its cash flows. Moreover, import restrictions by India, the world’s largest gold consumer, coupled with weakness in the country’s currency are weighing on demand for the yellow metal.
We also remain cautious about Kinross’s production costs given the industry-wide cost pressures. Production cost (per gold equivalent ounce) rose 9% year over year in the third quarter, hurting the company’s margins in the process.
Other Stocks to Consider
Other companies in the gold mining industry with favorable Zacks Rank are Lake Shore Gold Corp. (LSG), Pretium Resources Inc. (PVG) and Golden Star Resources, Ltd. (GSS). All of them retain a Zacks Rank #2 (Buy).
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