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Shares of Kinross Gold (NYSE: KGC), a gold and silver mining company with properties throughout North and South America, Asia, and Africa, surged by as much as 16% on Wednesday after the company announced better-than-expected first-quarter earnings results after the closing bell on Tuesday.
For the quarter, Kinross Gold produced 671,956 gold equivalent ounces (GEO), which was a modest drop from the 687,463 GEO produced in the prior-year quarter. Nonetheless, higher average selling prices for gold ($1,220 an ounce in first-quarter 2017 versus $1,179 an ounce in first-quarter 2016) helped push revenue to $796.1 million, up from $782.6 million at this time last year. This $796.1 million was $6 million higher than Wall Street forecasted.
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Bald Mountain and Tasiast stood out for their increase in year-over-year production (which is no surprise given the ongoing expansion at both mines), while Kupol in Russia saw production dip by more than 49,000 GEO. Production costs, however, remained the same year over year for Kinross as a whole.
As for its bottom line, Kinross generated $250.9 million in adjusted operating cash flow, representing a healthy increase from the $207.6 million in adjusted operating cash flow reported in first-quarter 2016. Perhaps more importantly, it delivered adjusted net earnings of $23.4 million, or $0.02 per share. Though this is par for the course with its profit per share from the prior-year quarter, it was $0.01 per share better than Wall Street anticipated.
Kinross also announced the sale of a 25% interest in Cerro Casale and a 100% interest in Quebrada Seca in Chile for $260 million in cash. Based on the $819 million Kinross ended the quarter with, it will have nearly $1.1 billion in cash and cash equivalents and a total liquidity position of $2.5 billion once the deal closes.
Looking ahead, Kinross expects 2.5 million to 2.7 million GEO production in 2017, with all-in sustaining costs of between $925 to $1,025 per ounce.
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Shareholders should be happy with today's results, despite the dip in GEO production. We're finally seeing Kinross' game plan pan out as expected. All-in sustaining costs for the quarter were relatively consistent at $945 per ounce in first-quarter 2017 compared to $950 per ounce last year, yet it's been able to continue the development of key projects -- most notably, Tasiast -- without any funding concerns.
You might recall that Kinross wound up taking two major writedowns on Tasiast that totaled nearly $5.6 billion in aggregate. However, with Kinross' costs and capital expenditures now under control, and the price of gold having stabilized, it's been able to move forward with its phase 1 expansion, which willincrease throughput capacity at the mine by 50% to 12,000 tons per day. This should yield average production of 409,000 ounce of gold per year between 2018 and 2027. For comparison, Tasiasts extrapolated first-quarter production puts it on pace for about 258,000 ounces in 2017. That's a big jump, and it will lower all-in sustaining costs in the process.
Kinross is a cash flow machine that's seeing everything finally come together. Value investors looking for a potential bargain in the gold mining industry would be wise to give it a closer look.
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