Kinross Gold's (KGC, Financial) superior cost reduction efforts of Kinross implemented at the key Tasiast mine is believed to support the company in achieving the set targets for overall production, cost of sales and capital expenditures.
Strong performance across the board
Kinross Gold delivered record fiscal year 2014 gold production of 2.7 million ounces at reduced capital expenditures even in such a declining pricing scenario for the metal. Kinross reported nearly $1 billion of cash on the balance sheet and successfully relies on its capabilities to complete a project financing deal. The significant amount of cash on the company’s balance sheet highlights its effective cost-cutting efforts and keen focus on delivering superior shareholder returns.
America performed excellently during the year and better than the production guidance for 2014, while recording significant cost reductions. The major operating region of America contributed nearly 53% of its total production for the year.
The Paracatu mine of Kinross in Brazil achieved significant quarterly results with its major operations at the mine continuously benefiting from the company’s ground-breaking ore blending technology started by the end of 2014.
The superior performances at the key mines in America and Brazil are forecast to drive significant improvements in the production and thus enhanced shareholder returns.
The way forward
Kinross seems to have an excellent operational track record with 10 consecutive quarters of solid results. The gold miner also has robust liquidity of $2.5 billion in cash and smaller total debt of $1.0 billion only. Further, it has no major debt maturities until 2016.
The key strategy of Kinross not to proceed with Tasiast mill expansion at the current time is believed to solidify the company’s confidence in taking on this significant growth opportunity in the near future. In addition, Kinross expects to complete La Coipa phase 7 pre-feasibility studies in the third quarter of 2015.
The key growth plans of Kinross coupled with significantly healthy balance sheet is forecast to induce confidence in its management to achieve superior expansion results.
The shares of Kinross fell sharply compared to its peers in this declining gold pricing environment primarily due to the fears of country risk with Kinross having a majority of assets in Russia including the Dvoinoye and Kupol mines. These mines are believed to deliver just 27.5% of Kinross Gold's overall production.
The country risk related to Russia seems to be exaggerated by the company. However, the well-defined efforts of Kinross to expand its drilling operations and minimize capital expenditures are estimated to hugely benefit the company in a long run.
Conclusion
Overall, the investors are advised to avoid investments into the Kinross Gold Corporation looking at the poor gold pricing levels in the market coupled with the disappointing company valuations. The PEG ratio of -1.80 suggests no growth but decline compared to solid industry’s average of 0.22. The profit margin of -33.65% indicate no profit but loss. Diluted EPS of -1.02 depicts fall in shareholder earnings. Moreover, the company’s balance sheet is significantly debt-laden with total debt of $2.06 billion against total cash of $1.02 billion only.
