Update: Kinross Gold's Earnings

| About: Kinross Gold (KGC)

Summary

Kinross Gold reported relatively good second quarter earnings of $0.03/share on higher production, lower costs.

This is largely in line with my bullish thesis spelled out in February.

The company has written off its bad assets and gotten its act together, although shares should remain under pressure as U.S.-Russian tensions continue. Gold bulls should buy on weakness.

Kinross Gold (NYSE:KGC) reported earnings that were more or less in line with analyst expectations. Net income came in at $46 million on revenue of $912 million. The company managed to increase production year over year from 655,000 ounces to 680,000 ounces of gold. While its average realized gold price fell by about $110/oz. ($1,285/oz. vs. $1,394/oz.) production costs fell as well from $1,038/oz. to $976/oz,

This is largely what I anticipated in my February article, in which I pointed out that Kinross Gold had in large part eliminated its riskiest assets while focusing on mining high grade zones of its core assets while the gold price remains low. The company, like many others, is still only marginally profitable at the current gold price: $46 million in profits on $912 million in revenue means the company's actual cost of production when we account for every expense (including taxes) is roughly $1,220/oz. But this is substantially better than last year, demonstrating that the turnaround is well underway.

One concern that investors have expressed, and one of the reasons that Kinross shares have been so weak is the company's Russian assets. These account for 20% of production, but considering that these are the company's lowest cost producing mines the Russian assets account for a whopping 50% of Kinross' profitability. This is in large part responsible for the company's weak share price performance year to date: shares are down 7% while the Market Vectors Gold Miners ETF (NYSEARCA:GDX) is up 25%. Investors should certainly be concerned, but they should also keep in mind that the ongoing geopolitical tension is between the U. S. and Russia and Kinross is a Canadian company. Investors should also be reassured that this risk is largely priced into the stock, and while a Russian confiscation of Kinross' assets would be pretty devastating the company is doing a lot of work expanding its non-Russian assets, most notably its Tasiast Project in Mauritania. The stock, in my opinion, remains one of the most hated in the sector without good reason, and it appears to be at a generational low, making it a "buy."

Disclosure: The author is long KGC. The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it (other than from Seeking Alpha). The author has no business relationship with any company whose stock is mentioned in this article.