When an analyst initiates or upgrades a stock and accompanies that recommendation with a long-term positive outlook, it usually means good things are ahead for investors. When such actions occur there's usually a significant reason why. With that said, I wanted to focus on one particular gold miner (GDX) that was upgraded in the last 24 hours and some of the variables long-term growth investors should consider.
Kinross Gold (KGC) had its shares upgraded by Canaccord Genuity on Thursday. Canaccord rated the company a "Buy" from a previous rating of a "Hold" and maintained its $13/share price target on the stock. The Toronto-based company which "engages in mining and processing gold ores", beat earnings estimates by $0.03/share ($0.22 actual vs. $0.19/share estimated) on revenue of $1.11 billion. Analysts were expecting the company to earn $0.19/share on revenue of $1.08 billion.
Not only do I think the upside beat was significant, but the company's outlook looks even more impressive. According to an earnings snapshot featured on Seeking Alpha, "the company now expects to be at the high end of its FY12 production forecast of approximately 2.5M - 2.6M gold equivalent ounces, and its 2012 cost of sales forecast of $690 - $725 per gold equivalent ounce. FY12 capital expenditures have also been reduced to approximately $2.0B, compared with the previous forecast of $2.2 billion".
In my opinion, the numbers aren't the only positive catalyst to be considered. According to Peter Koven of FinancialPost.com, CEO Paul Rollinson said that "In order to control costs at Tasiast (the company's mine located in Mauritania), Kinross is studying a plan to downsize initial production and gradually ramp up production at the mine. The company expects to provide an update on the plan early next year. In the meantime, Kinross announced Wednesday that it has elected not to use an alternative processing method for sulphide ore at Tasiast". By reducing costs and downsizing initial production, long-term costs could very well be reduced and a direct result of the company's strategy.
Is there an income angle to consider when it comes to Kinross Gold? Yes there is and although not one of the higher-yielding names in the gold mining sector, the angle is worth a closer look. Currently, KGC yields 1.70% ($0.16), which is seemingly small by comparison; the company has increased its payout three times in the last three-and-a-half years.
For potential investors looking to establish a position in Kinross Gold, the company's most recent quarter combined should fuel the establishment of longer-term positions. I think that not only will company's strategy in Mauritania play a key role in regional production, but reduced costs across the board could mean substantial revenues for years to come.