Given Kinross Gold's $0.05 Dividend, Capital Can Be Better Deployed Elsewhere

| About: Kinross Gold (KGC)

KGC Chart 17 Feb 2011.JPGClick to enlarge

We can't say that we are overwhelmed with this dividend payout from Kinross Gold Corporation (NYSE:KGC) and we are even less impressed with the performance of the stock price over recent years. As the above chart shows, the stock price was $25.00 plus in 2008 and since then has steadily plodded south to close yesterday at $16.99. KGC now has a huge market capitalization which is close to $20 billion and a low P/E ratio of 15.73, however the stock price is still in decline.

The President and CEO, Tye Burt, made the following comments in relation to fourth quarter and year-end 2010 results:

"In 2010, Kinross’ proven and probable gold reserves increased by 23%. Our production reached a new record with strong performance from our mines, and for the first time, annual revenue exceeded $3 billion while adjusted operating cash flow4 exceeded $1 billion. Margins averaged $683 per ounce in 2010, an increase of 29% year-over-year, compared with a 23% year-over-year increase in the average realized gold price per ounce.

"In 2011, with a full year of output from our West African mines, we forecast production will increase to 2.5-2.6 million gold equivalent ounces, while we also expect higher costs as a result of increased energy and labour costs, and lower average grades."

We also draw your attention to the expectation of higher costs. This gives us cause for concern as there other producers out there who appear to be getting their costs down, granted they are not the giant that Kinross is, but our focus is on return on capital. This may be a case of big not being beautiful.

The highlights of the company's results are as follows:

  • Production in the fourth quarter of 2010 was 676,635 gold equivalent ounces, a 10% increase over Q4 2009. For full-year 2010, gold equivalent production was 2,334,104 ounces, in line with previously announced guidance.
  • Revenue for the quarter was a record $920.4 million, compared with $699.0 million in the fourth quarter of 2009, an increase of 32%, with an average realized gold price of $1,333 per ounce sold compared with $1,094 per ounce sold in Q4 2009. Revenue for the full-year 2010 was a record $3,010.1 million, a 25% increase over full-year 2009.
  • Cost of sales per gold equivalent ounce was $551 for Q4, which includes a Red Back Mining purchase accounting increase of $13, compared with $437 for Q4 2009. Cost of sales per ounce sold for full-year 2010 was $508, inclusive of a full year Red Back purchase accounting increase of $5, compared with $437 for full-year 2009. Full-year cost of sales per ounce was in line with previously stated guidance. Kinross’ attributable margin per ounce sold3 was a record $782 in Q4, a year-over-year increase of 19%. The attributable margin per ounce sold for full-year 2010 was $683, a 29% increase over 2009.
  • Adjusted operating cash flow4 for Q4 was $332.7 million, a 14% increase over Q4 2009, and $1,091.2 million for the full year, a 16% increase over full-year 2009. Adjusted operating cash flow per share was $0.29 in Q4, versus $0.42 Q4 2009, and $1.32 per share for full-year 2010, compared with $1.36 for full-year 2009.
  • Adjusted net earnings4 were $144.7 million, or $0.13 per share, in Q4, compared with $148.6 million, or $0.21 per share, for Q4 2009. Adjusted net earnings for full-year 2010 were $478.8 million, or $0.58 per share, compared with $304.9 million, or $0.44 per share, for full-year 2009. Reported net earnings were $210.3 million, or $0.19 per share in Q4, compared with $235.6 million, or $0.34 per share, for Q4 2009. Full year reported net earnings were $771.6 million, or $0.94 per share, compared with $309.9 million, or $0.45 per share for full-year 2009. Earnings were reduced by additional exploration expenditures of approximately $23 million at Tasiast, and by the timing of year-end metal shipments, which deferred sales of approximately 30,000 ounces of Q4 2010 gold production to Q1 2011.
  • Kinross forecasts 2011 production of 2.5-2.6 million gold equivalent ounces at an average cost of sales per gold equivalent ounce of $565 – 610.
  • Proven and probable mineral reserves as of December 31, 2010 were 62.4 million gold ounces, an 11.5 million ounce, or 23% increase year-over-year.
  • Proven and probable mineral reserves at Tasiast increased to 7.6 million gold ounces, measured and indicated mineral resources were 2.1 million gold ounces and inferred mineral resources increased to 8.6 million gold ounces. The Company has completed a scoping study for the Tasiast expansion project based on a 16-year life for the expanded project with average annual production of approximately 1.5 million ounces at an average gold grade of approximately 2 g/t for the first eight full years of the expanded project.
  • Kinross has declared its first proven and probable gold reserves of 6.8 million ounces at Fruta del Norte. The company has prepared a pre-feasibility study and technical report for FDN that estimates average annual production of 410,000 gold ounces over the 16-year life-of-mine. FDN permitting is on schedule to support the project development timeline.
  • The company has completed a scoping study for Dvoinoye that contemplates processing higher-grade Dvoinoye ore at the Kupol mill, and an increase in Kupol throughput from 3,000 to 4,000 tonnes per day.
  • The board of directors declared a dividend of $0.05 per share payable on March 31, 2011 to shareholders of record on March 24, 2011.

So there we have it and as you know, we sold our share holding on last November for $18.69, when we wrote:

"Our patience has come to an end so we must bid farewell to the Kinross Gold Corporation, today we sold all of our shares taking the cash back to the side lines where we hope to deploy it in such a manner as to enjoy a good return it."

The question we must ask ourselves is can our capital be better deployed elsewhere?

And the short answer is yes, but we’ll continue to observe for now and keep our wallet tightly closed.

Kinross Gold's 52 week trading is range is $14.84 - $19.90, a very modest P/E ratio of 15.73 and an EPS of $1.08.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

Disclaimer: makes no guarantee or warranty on the accuracy or completeness of the data provided on this site. Nothing contained herein is intended or shall be deemed to be investment advice, implied or otherwise. This website represents our views and nothing more than that. Always consult your registered advisor to assist you with your investments. We accept no liability for any loss arising from the use of the data contained on this website. We may or may not hold a position in these securities at any given time and reserve the right to buy and sell as we think fit.