Kinross Gold - All You Need To Know About The Q2 2016 Results

| About: Kinross Gold (KGC)

Summary

Kinross Gold released its 2Q'16 results on July 27, 2016. Revenue was $876.4 million, up 12% quarter over quarter. Good quarter overall with gold up 7.4% since 1Q'16.

Kinross indicated that it has resolved the expatriate work permit issue with the Government of Mauritania and expects to resume normal operations in August 2016 at Tasiast.

Good balance sheet and impressive outlook. However, I find the entire gold sector a little "too rich" and recommend to take some profit off.

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

Q1 2015

Q4 2014

Production (Attrib.)

in Oz E.

671,267 687,463 623,716 680,679 660,897 629,360 672,051

Revenue

in $ Million

876.4 782.6 706.2 809.4 755.2 781.4 791.3

AISC in

$/Oz

988 963 991 941 1,011 964 1,006

Adjusted operating cash flow

$ Million

187.2 202.6

203.8

206.6 161.4 214.8 197.6

Adjusted operating cash flow

$/share

0.15 0.17 0.18 0.18 0.14 0.19 0.17

Adjusted net earnings

$ Million

(9.8) 1.4 (68.8) (23.9) (13.6) 15.3 (6.0)

Net earnings

$ Million

(25.0) (13.9) (841.9) (52.7) (83.2) (6.7) -

EPS

$/share

(0.02) (0.01) (0.73) (0.05) (0.07) (0.01) (0.01)

Impairment charge + write down inventory

$ Million

- - 674.5 0 24.5 0 1,251.4

Average realized gold price

$

1,266 1,179 1,108 1,122 1,194 1,218 1,201

Total debt

(current and long term)

$ Million

1,983.0 1,981.4 1,981.4 1,974.0 1,987.1 1,986.1 1,998.1

Total liabilities

$ Million

3,995.7 3,898.1 3,802.2 3,806.3 3,891.3 3,933.8 4,059.6
Capital expenditure $ Million 114.0 139.5 160.7 171.3 128.5 149.5 189.4

Cash and cash equivalent

$ Million

968.2 750.4 1,043.9 1,024.8 1,031.4 1,010.5 983.5

G & A in

$ Million

32.4 38.3 51.6 44.2 44.6 39.0 51.2

Finance expense

$ Million

32.3 33.2 26.4 21.9 23.7 24.0 29.4
Shares outstanding in Million 1,244.4 1,244.1 1,146.5 1,146.3 1,146.3 1,145.1 1.145
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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

760

230 435 95
Production cost of sale $ 675/735 730/790 850/920 460/490
AISC $/Au E. Oz $890-990 ($975 in 2015 - $973 in 2014)
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Production per mine and per Quarter.

2Q'16 1Q'16 4Q'15 3Q'15 2Q'15 1Q'15
Fort Knox 97,221 87,800 87,561 115,258 116,061 82,673
Round Mountain 92,813 92,926 51,034 58,074 48,448 40,262
Bald Mountain 32,704 20,422 0 0 0 0
Kettle River - Buckhorn 25,031 28,312 19,301 24,222 29,580 24,265
Paracatu 126,774 119,376 113,547 129,064 110,366 124,685
Maricunga 44,304 59,076 54,948 52,672 47,713 56,822
Americas - 58.95% 418,847 407,912 326,391 379,290 352,168 328,707
Kupol 183,638 192,450 191,308 190,366 191,160 185,729
Russia - 27.8% 183,638 192,450 191,308 190,366 191,160 185,729
Tasiast 29,577 47,078 53,306 53,440 57,890 54,009
Chirano 90% 39,205 44,470 52,711 57,783 66,079 60,915
West Africa - 13.25% 68,782 91,548 106,017 111,223 110,570 121,924
Total 671,267 691,910 623,716 680,679 660,898 629,360
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As 12/31/2015 Gold Silver Copper
Grade 0.7 g/t 4.1 g/t 0.22%
P1 + P2 reserve 33,955 Koz 40,982 Koz 1,444 Mlb
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Commentary

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.

AISC for 2Q'16 was $988/Oz, up 2.6% quarter over quarter. For example, I commented on Barrick Gold (NYSE:ABX) yesterday, the 2Q'16 AISC is $782/Oz.

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M. Tony Giardini, CFO, said in the conference call:

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.

Conclusion:

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.

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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.