Kinross Gold (NYSE:KGC)
This article updates my preceding article on Kinross Gold, published on May 13, 2016, about the 1Q'16 results.
KGC 2Q'16 Conference call transcript, click here.
Q2'16 Balance Sheet Information (Seven Quarters)
|Q2 2016||Q1 2016||Q4 2015||Q3 2015||Q2 2015||Q4 2014|
in Oz E.
in $ Million
Adjusted operating cash flow
Adjusted operating cash flow
Adjusted net earnings
Impairment charge + write down inventory
Average realized gold price
Total debt(current and long term)
|Capital expenditure $ Million||114.0||139.5||160.7||171.3||128.5||149.5||189.4|
Cash and cash equivalent
G & A in
|Shares outstanding in Million||1,244.4||1,244.1||1,146.5||1,146.3||1,146.3||1,145.1||1.145|
Outlook - 2016 Compared To 2015 Per Region
|Total||Americas||West Africa (Attributable)||Russia|
|2014 Production $ Billion||2.739||1.441||0.547||0.751|
|2015 Production $ Billion||2.595||1.3/1.4||0.39/0.46||0.71/0.76|
|2016 Production $ Billion||2.7-2.9||1.67-1.77||0.36-0.42||0.67-0.71|
|% of total production (2015)||100%||61%||14%||25%|
|Capital expenditures $ Million|| |
|Production cost of sale $||675/735||730/790||850/920||460/490|
|AISC $/Au E. Oz||$890-990 ($975 in 2015 - $973 in 2014)|
Production per mine and per Quarter.
|Kettle River - Buckhorn||25,031||28,312||19,301||24,222||29,580||24,265|
|Americas - 58.95%||418,847||407,912||326,391||379,290||352,168||328,707|
|Russia - 27.8%||183,638||192,450||191,308||190,366||191,160||185,729|
|West Africa - 13.25%||68,782||91,548||106,017||111,223||110,570||121,924|
|Grade||0.7 g/t||4.1 g/t||0.22%|
|P1 + P2 reserve||33,955 Koz||40,982 Koz||1,444 Mlb|
Kinross Gold released its 2Q'16 results on July 27, 2016. Revenue was $876.4 million, up 12% quarter over quarter. It is important to indicate that $276.9 million of free cash flow was generated from operations in the first half of 2016. Here is what it said:
As of June 30, 2016, Kinross had cash and cash equivalents of $968.2 million, a decrease of $75.7 million since December 31, 2015, mainly as a result of the $588.0 million used in the acquisition of the Bald Mountain mine and the remaining 50% interest in the Round Mountain mine, offset by net proceeds of $275.7 million from the equity issuance in Q1 2016 and $276.9 million of free cash flow generated from its operations in the first half of 2016. The Company also has available credit of $1,499.6 million as of June 30, 2016 for total liquidity of approximately $2.5 billion.
However, I found the company AISC a little high compared to its peers, and progress should be made to reduce it in the future.
Our cash balance now stands at $968 million, which is just below where our cash position wise prior to the Nevada acquisition in January. And our total liquidity is now just under $2.5 billion. This provides us with the comfortable margin to pay down $250 million in senior notes due in September. In July, we extended the maturities on our $1.5 billion revolving credit facility and our $500 million term loan by one year to August 2021 and August 2020, respectively.
KGC has been flat to slightly lower since early May, after following an impressive come back from its January lows mid-January.
In June, the company announced that the Tasiast mine in Mauritania, has been shut down due to an expat work permit problem, which is now resolved.
However, production will be down starting June 18 to August. The Tasiast mine is producing about 30K Oz/quarter and production will be impacted in 3Q'16.
The Tasiast mine is an important "piece of the KGC assets puzzle" and the phase 1 of the expansion of the mine has been implemented with some "slippage."
However, there has been some minor slippage in regards to the construction schedule and there is a possibility that the ramp up to full production could extend from Q1 into Q2 of 2018.
In South America, the rainfall insufficiency continues to be a problem at Maricunga and Paracatu, which means that operations at the mines will be curtailed in the second half of Q3.
Notwithstanding this issue, KGC released a strong second quarter.
M. Paul Rollinson, CEO, said in the conference call:
It was strong quarter for us on many fronts, particularly in regards to cash flow and our overall balance sheet strength. We generated free cash flow in Q2 of more than $200 million, bringing our cash balance up to approximately $970 million as of June 30. This was largely a result stronger gold prices, strong performance from our U.S., Russian and Brazilian operations, benefits from lower oil prices and favorable foreign exchange rates, and continued discipline around our CapEx and OpEx.
One important milestone has been the acquisition in Nov. 2015 of the two mines in Nevada, Bald Mountain and Round Mountain from Barrick Gold for $610 million in cash.
In late June, Bald Mountain's final EIS was issued by federal regulators and we expect a final plan of operation to be approved by mid August. This is great news and will allow us to complete modest infill and metallurgical drilling, which we anticipate will provide sufficient information to convert a substantial amount of Bald's 4 million ounces of estimated mineral resources into mineral reserves.
Looking at the chart, it is clear that KGC has reached a strong resistance around $5.50 and I do not think the stock will be able to breach it on its own merit. I expect a lower production for 3Q.
I recommend a partial selling (profit off the table) at or above $5.50. It is prudent to wait for a meaningful retracement below $4.25 before accumulating again.
Important note: Do not forget to become one of my followers on KGC and other gold miners. Thank you.
Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.