Kinross Gold - an underperformer looking better

[drbubb]

Kinross Gold - an underperformer looking better

Revenues, CFs are improving, Production to Grow?

===============================================

 

KGC / K.t / Kinross Gold ... update : 2-years : 10-days

 

Updated

 

I bought a healthy number of calls yesterday.

I may be a bit early, but I thought the improving revenues and cash flow, made this compelling:

 

11.02.11 - Kinross reports 2011 third quarter results

 

Record revenue exceeds $1 billion; margins up 50%, adjusted operating cash flow up 82%

Adjusted net earnings up 134%

 

Third quarter highlights

 

Financial and operating results:

 

Production(2): 647,983 gold equivalent ounces, a 13% increase over Q3 2010.

 

Revenue: $1,069.2 million, a 45% increase over Q3 2010.

Production cost of sales(3): $634 per gold equivalent ounce, compared with $517 in Q3 2010.

 

Attributable margin(4): $1,012 per ounce sold, a 50% increase over Q3 2010.

Adjusted operating cash flow(5): $421.6 million, an 82% increase over Q3 2010. Adjusted operating cash flow per share was $0.37 in Q3, compared with $0.30 in Q3 2010.

 

Adjusted net earnings(1,5): $273.4 million, a 134% increase over Q3 2010. Adjusted net earnings per share were $0.24, compared with $0.15 in Q3 2010.

Reported net earnings(1): $212.6 million, or $0.19 per share, compared with $540.9 million, or $0.71 per share, for Q3 2010. Q3 2010 earnings included significant one-time gains.

 

Outlook: The Company expects to be within its 2011 forecast guidance for production (2.6 - 2.7 million attributable gold equivalent ounces) and production cost of sales ($565 - 610 per gold equivalent ounce).

 

Growth projects:

Kinross continues to advance its major growth projects at Tasiast, Fruta del Norte, Lobo-Marte, and Dvoinoye, all of which are proceeding on schedule.

The Company has received approval of the Environmental Impact Assessment for early works at Tasiast and mobilization for construction has commenced. Capital commitments at Tasiast to the end of Q3 were $782 million.

 

/source: http://kinrossgold.com/news-articles/2011/110211-q3-2011-results.aspx

[drbubb]

Kinross Gold Production

(year)

2006-A : 1.5 million oz

2010-A : 2.3 million oz

2011-E : 2.6 - 2.7 mn (2.65 mn)

2015-E : 4.5 - 4.9 mn (4.70 mn): that's 15.4% pa

=====

 

/presentation: http://kinrossgold.com/media/221700/091911%20denver%20gold%20forum%20-%20website.pdf

[drbubb]

Leverage to Gold Price :

Resource Oz per $1000 invested

======

GLD - : 0.6 Gold etf

GG - - : 2.6 Goldcorp

GOLD : 2.9 Randgold

AGM - : 3.3 Agnico Eagle

AUY - : 3.9 Yamana

NEM - : 4.2 Newmont

ABX - : 4.8 Barrack

NCM- : 5.0 Newcrest

KGC- : 5.6 Kinross

[G0ldfinger]

Leverage to Gold Price :

Resource Oz per $1000 invested

======

GLD - : 0.6 Gold etf

GG - - : 2.6 Goldcorp

GOLD : 2.9 Randgold

AGM - : 3.3 Agnico Eagle

AUY - : 3.9 Yamana

NEM - : 4.2 Newmont

ABX - : 4.8 Barrack

NCM- : 5.0 Newcrest

KGC- : 5.6 Kinross

I recently bought Agnico Eagle. Yamana and Kinross are on the shopping list. I'll stay clear off the big ones. Somehow, I don't trust them. They might do stupid things, like hedging etc.

[drbubb]

I recently bought Agnico Eagle. Yamana and Kinross are on the shopping list. I'll stay clear off the big ones. Somehow, I don't trust them. They might do stupid things, like hedging etc.

They already did some hedging, and without appropriate expertise, unfortunately

(I could have saved these guys millions- but the banks cannot help but push their products):

 

As a result of gold forward purchase contracts entered into during the year and subsequent to December 31, the Company has de-designated 96% of Kupol gold forward sales contracts maturing in 2011 and 100% of such contracts maturing in 2012. As a result, Kinross expects the net impact of locked-in Kupol gold hedges to be a $155 million reduction in revenue in 2011. Kupol silver hedges are expected to reduce revenue by $40 million in 2011, based on a budgeted silver price of $24 per ounce.

 

/see: http://kinrossgold.com/media/211410/021611%20kinross%20reports%202010%20fourth%20quarter%20and%20year-end%20results.pdf

[G0ldfinger]

They already did some hedging, and without appropriate expertise, unfortunately

(I could have saved these guys millions- but the banks cannot help but push their products):

Again I have to wonder whether people like Puplava or Doody deduct these kind of forward deals or sold royalty rights when they do their "ounces in the ground (per share)" considerations. Because, essentially, you have to subtract these, i.e. you have to calculate "fully diluted ounces in the ground".

[G0ldfinger]

Again, we need to know "fully diluted ounces in the ground per share". And then production costs of those course (again, total cost of all mining operations per ounce that the company actually owns, i.e. "diluted").

 

If I have 100oz in the ground and producing them costs me $500/oz, but a long time ago I gave away 50% of my production for essentially free (e.g. as a royalty stream or a hedge), my diluted cost an ounce is $1000!!

 

Leverage to Gold Price :

Resource Oz per $1000 invested

======

GLD - : 0.6 Gold etf

GG - - : 2.6 Goldcorp

GOLD : 2.9 Randgold

AGM - : 3.3 Agnico Eagle

AUY - : 3.9 Yamana

NEM - : 4.2 Newmont

ABX - : 4.8 Barrack

NCM- : 5.0 Newcrest

KGC- : 5.6 Kinross

[Undertaker]

Any worthwhile goldminers in the UK market?

[JIMBOWEN27]

Any worthwhile goldminers in the UK market?

 

Yes - worth having a look at Medusa Mining, which is a midcap producer aiming to grow production from current 100,000oz/pa to 400,000oz/pa by 2016. They are unhedged and generating a lot of cash. All development can be self funded and they pay a divi of around 1.5%. I've held for three years now and met the management this week. I posted my comments on the Medusa thread:

 

http://www.greenenergyinvestors.com/index.php?showtopic=7013

 

Also worth having a look at Centamin Egypt (CEY) which has a massive mine but has been hit by political risk concerns.

[drbubb]

I had a coffee today with two guys who have been following KGC more closely than I.

 

I asked them, "Why is Kinross so cheap?"

 

Their answer:

 

Kinross keeps dilluting their shareholders. They are so keen to grow, that they pay too much for their acquisitions. The latest example was Red-Back Mining where they paid a ridiculous price for a company with a deposit in Mali. Is that really where you want to be building an expensive mine.

 

I said:

"Yes. I heard about that. And I know there were many complaints. Perhaps the company has now learned its lesson about paying too much, since the stock has been beat up. It's price is way down as a percentage of GDX." (see Ratio, below.)

 

Answer: I doubt it. They may soon make another expensive acquisition. They don;t have enough discipline.

 

RATIO: KGC-to-GDX

 

Well, maybe they are right. On the other hand, you need a reason to get such a low valuaton, and if these acquisitions all result in profitable mines, and the company shows some greater discipline, then there's a chance for a re-rating.

[G0ldfinger]

I had a coffee today with two guys who have been following KGC more closely than I.

 

I asked them, "Why is Kinross so cheap?"

...

Interesting stuff, thanks. It really is no wonder the royalty companies have fared best. This sector simply needs to show how they want to return money (or, even better: gold) to their investors.

[AceofKY]

I had a coffee today with two guys who have been following KGC more closely than I.

 

I asked them, "Why is Kinross so cheap?"

 

Their answer:

 

Kinross keeps dilluting their shareholders. They are so keen to grow, that they pay too much for their acquisitions. The latest example was Red-Back Mining where they paid a ridiculous price for a company with a deposit in Mali. Is that really where you want to be building an expensive mine.

 

 

Bubb,

That's what I thought too when the acquisition was announced. But Tasiast keeps growing exponentially. M&I resources are already past 16.5MM ounces. When I was a Rio Narcea shareholder back in ~2006 this was a sub 1MM oz deposit. I'm still mad at the RNO directors for selling what has turned out to be a world class asset so cheaply.

So now I'm starting to wonder if Kinross knew what they were doing with this acquisition after all. I'm going to be reassessing Kinross in the near future.

[G0ldfinger]

Bubb,

That's what I thought too when the acquisition was announced. But Tasiast keeps growing exponentially. M&I resources are already past 16.5MM ounces. When I was a Rio Narcea shareholder back in ~2006 this was a sub 1MM oz deposit. I'm still mad at the RNO directors for selling what has turned out to be a world class asset so cheaply.

So now I'm starting to wonder if Kinross knew what they were doing with this acquisition after all. I'm going to be reassessing Kinross in the near future.

Oho, very interesting. I am definitely interested in hearing more.

[drbubb]

(Received by email yesterday):

 

KGC - up almost 6% today.....

 

 

Shares of Kinross Gold got a boost after Thomson reported that the company and the government of Ecuador were close to signing an exploitation agreement to develop the world-class Fruta Del Norte (FDN) gold property. The contract will reportedly require a royalty payment in advance, however the minister responsible noted that he would not comment until a contract is signed. Kinross gained control of the FDN resource when it acquired Aurelian Resources for $1.2 billion. The Fruta Del Norte deposit contains 13.7 million ounces of contained gold and 22.4 million ounces of contained silver. With the total resource contains 58.9 million tonnes grading 7.23 g/t gold and 11.8 g/t silver according the last resource estimate. A Bay Street analyst currently values FDN at $652 million (in-situ basis due to permitting risks), which could potentially increase to approximately $2 billion on a discounted cash flow basis.

[JIMBOWEN27]

(Received by email yesterday):

 

KGC - up almost 6% today.....

 

 

Shares of Kinross Gold got a boost after Thomson reported that the company and the government of Ecuador were close to signing an exploitation agreement to develop the world-class Fruta Del Norte (FDN) gold property. The contract will reportedly require a royalty payment in advance, however the minister responsible noted that he would not comment until a contract is signed. Kinross gained control of the FDN resource when it acquired Aurelian Resources for $1.2 billion. The Fruta Del Norte deposit contains 13.7 million ounces of contained gold and 22.4 million ounces of contained silver. With the total resource contains 58.9 million tonnes grading 7.23 g/t gold and 11.8 g/t silver according the last resource estimate. A Bay Street analyst currently values FDN at $652 million (in-situ basis due to permitting risks), which could potentially increase to approximately $2 billion on a discounted cash flow basis.

 

Taking over Aurelian for $1.2bn doesn't look that cheap. As a comparison you can buy Centamin Egypt, which has a 14m oz resource (and a resource upgrade out next month) for around £900m. They are producing 200k oz this year and forecasting 300k oz next year, rising to 500k oz from 2013 onwards. Obviously they have been hammered this year as they operate in Egypt.

[Irelander]

On the other side, James Montier of GMO thinks that the mining sector is over valued http://www.investmentpostcards.com/2010/03/12/interview-james-montier-on-behavioral-investing/

[G0ldfinger]

Taking over Aurelian for $1.2bn doesn't look that cheap. As a comparison you can buy Centamin Egypt, which has a 14m oz resource (and a resource upgrade out next month) for around £900m. They are producing 200k oz this year and forecasting 300k oz next year, rising to 500k oz from 2013 onwards. Obviously they have been hammered this year as they operate in Egypt.

I guess it has to be seen what the elections bring (Muslim regime?). But the ongoing civil unrest/war is not so great for stocks, sure.

[drbubb]

Kinross / KGC ... update

 

 

The bottom of the channel has now been tagged

[drbubb]

Where there's smoke there's fire…

Several days after reports started leaking out that the Government of Ecuador was about to sign new mining contracts with mining companies, President Rafael Correa was quote by Reuters saying that his government is "within days" of finalizing these contracts. Deputy Mining Minister Federico Auquilla told Reuters earlier this week that Canadian-listed Kinross Gold Corp and Ecuacorriente would soon sign contracts for two projects worth $3 billion in total. While no details have been released, it has been widely speculated that the new agreement would include upfront royalty payments, along with a final royalty rate that is closer to what the government is demanding.

 

Kinross owns the very rich Fruta Del Norte gold project, that it gained control of when it acquired Aurelian Resources several years ago. The Fruta Del Norte deposit contains 13.7 million ounces of contained gold and 22.4 million ounces of contained silver. With the total resource contains 58.9 million tonnes grading 7.23 g/t gold and 11.8 g/t silver according to the last resource estimate. Other companies with exposure to Ecuador include Dynasty Metals and Mining (DMM) along with Ecuacorriente which is developing its Panantza-San Carlos copper deposit and IAMGold (IMG), which plans to develop its Quimsacocha gold-copper-silver mine.

[drbubb]

UP AGAIN

 

Last [Tick] $13.29 + $0.55 / % Change 4.32%

Open $13.17 / Day High $13.44 / Day Low $13.14

Volume 705,651

 

... A bit more than GDX :

GDX

USDMARKET VECTORS GOLD MINERS ETF

Last [Tick] $56.73 + $1.94 / % Change 3.54%

[AceofKY]

Kinross gives up 70% of Fruta Del Norte upside:

 

http://www.kitco.com/pr/1267/article_12052011163649.pdf

 

These do not look like good terms to me.

[drbubb]

MORE Bad News !

 

(I am out of KGC now - Thank Goodness)

 

But I did not like the look of this new - Nor did the stock market ! / KGC-chart

 

Kinross shares off after Mauritania-mine delay

 

Kinross Gold Corp. KGC -16.68% said it will require an additional six to nine months of analysis and planning to develop its Tasiast gold mine in Mauritania, and expects to record a "material" non-cash impairment charge in connection with the project.

 

The Toronto-based gold company's stock was recently off almost 19% to C$10.73 on the Toronto Stock Exchange, on heavy volume of about 9.6 million shares. In New York trading, the stock is off 16% to $10.57 on 1.7 million shares.

 

The charge relates primarily to the goodwill recorded for Tasiast in connection with the 2010 acquisition of Red Back Mining Inc., through which Kinross acquired the mine. Kinross said that, at Sept. 30, 2011, the book value of total assets of Tasiast was $7.1 billion, of which $4.6 billion was goodwill.

 

It said it hasn't finalized the Tasiast feasibility study or mine plan, and drilling results continue to demonstrate "significant exploration potential supporting a world class mine."

 

In a research note, TD Securities analyst Greg Barnes said company management hasn't been clear on why its plans for developing the project have changed, though it appears capital and operating costs are facing significant upward pressure.

 

In a statement, Kinross said its three major growth projects - Tasiast, Fruta del Norte and Lobo-Marte - will require significant capital expenditures over the next several years and that, in light of increasing industry-wide costs, it will conduct a comprehensive capital and project-optimization process.

 

Fruta del Norte is in Ecuador and Lobo-Marte is in Chile

[G0ldfinger]

http://www.bloomberg.com/news/2012-01-20/kinross-in-play-after-paying-too-much-in-african-gold-real-m-a.html

Kinross Gold Could Be a Takeover Target

...

By paying too much for acquisitions in western Africa, Kinross Gold Corp. (K) is now turning itself into the cheapest gold-mining target in the world.

...

After the slump this week, Kinross traded yesterday at a 24 percent discount to its assets minus liabilities, the lowest of any gold mining company with at least $1 billion in value.

...

“Newmont has no growth, whereas Kinross has plenty of growth projects,” Topping said in a telephone interview.

Time to buy?

[Carlton]

About a year ago I (profitably) traded calls on these guys. The stock has since sunken far further than I ever expected.

 

It certainly looks undervalued and like the shares should appreciate from here, with help from the broad indicies and from Au. But I wouldn't hold my breath for a takeover. With a mkt cap of $11 bln it's going to take serious resources to take over this company. ABX could do it, but others like NEM would be strained. I think the shares can appreciate on their own merit.

[drbubb]

kinross, as quoted in canada