Kinross Gold (KGC, Financial) recently released solid results for the fourth quarter reflecting a standout performance at operations across the company. It was an excellent fiscal year for the company as it delivered an impressive improvement in its key financials continuing for the 10th consecutive quarter.
This shows an impressive track record of the company which can give further pace to its growth in future. Kinross has also achieved good growth in production which can further help the company. Let us have a closer look at how Kinross manages to be profitable in soft commodity environment and the cost cutting strategies that will help it to maintain its margins.
Expecting better times ahead
The company having delivered solid results in the recently reported quarter and good track performance, is now confident of better performance in upcoming fiscal year despite weak gold pricing. Another key aspect that can benefit the company is its strong balance sheet. Despite decline in the gold prices, Kinross has been success in delivering solid cash flows. This ensures good cash position of the company. With a $1 billion cash on the balance sheet, Kinross is expecting better market share in future. In addition, Kinross Gold is taking some strict steps to achieve financial discipline by prioritizing balance sheet strengthening.
According to the recent updates, Kinross is not expanding its Tasiast Mill which was under consideration earlier. The company believes that there is solid potential in the mill to significant value to its long term prospects. The company also has enough potential to carry out the expansion but the management is planning to keep $1 billion cash in hand for contingencies if the gold prices continues to decline.
This can be a wise move by the company as any heavy fluctuation in the gold prices might hurt its smooth flow and affect its profitability big time. But having preserved the cash, Kinross is now confident of securing a good balance sheet which will help it to attain better financial flexibility while taking advantage of the growing opportunities around.
A closer look
Despite positive signs from Tasiast Mill, Kinross is still prone to some headwinds. The company will be laser focusing on bringing down the operating costs which are still high at Tasiast mill. This initiative will help Kinross to have better financial stability while also improving its efficiencies at other existing operations.
Kinross has also posted an upbeat outlook for 2015. It is expecting to deliver production between 2.4 million to 2.6 million ounces. However, it is expecting its production guidance to be softer than 2014 due to the potential impacts from power rationing in Ghana and Brazil. Furthermore, the sustaining costs in CapEx is also expected to be higher as Kinross is planning to undertake additional stripping to access more of the ore body at Fort Knox and Maricunga.
Conclusion
Now moving on to the fundamentals, the stock looks profitable in the near future, and its earnings are showing impressive growth in the near term which can be seen by its forward P/E of 31.56. But in the next five years due to fluctuating gold prices the earnings are showing disappointing growth with a CAGR of -26.30% which is very less as compared to the industry average of 19.96%. All these facts indicates that the investors can pick Kinross Gold for short term gains.
