Shares in Kinross Gold Corp. surged nearly 10 per cent on Thursday after the company reported earnings late on Wednesday that beat analysts' expectations and affirmed its 2012 production guidance.
The Toronto mining company said late Wednesday that its net income was $224.9 million, or 20 cents per share, in the July-through-September quarter. That compared with net income of $207.1 million, or 19 cents a share in the year-ago quarter. Revenue rose to $1.11 billion from $1.04 billion.
The most recent results reflected a number of one-time items, including a $7.1 million loss on derivatives and $16.4 million in severance expenses. Excluding those, Kinross' adjusted earnings were $250.4 million, or 22 cents per share. Analysts, on average, predicted an adjusted profit of 19 cents per share on revenue of $1.1 billion, according to FactSet.
Kinross said it remains on track to meet its 2012 production forecast of 2.5 million to 2.6 million gold equivalent ounces from its continuing operations, and forecast cost of sales at $690-$725 per gold equivalent ounce.
"All told we had a solid quarter. Now we're squarely focused on how to do better," said J. Paul Rollinson, chief executive officer of Kinross, in the call held for investors and analysts in conjunction with the firm's release of third quarter earnings.
"Margins and cash flow will be the key metrics in any decision we make," Rollinson said.
To do so, some of the steps the firm will take will be to identify what works well in higher-performing mines and apply them as possible in lower-performing mines. Further, the firm will also try to control costs by trying to improve contract management, expand a globally co-ordinated supply chain initiative and reduce energy consumption, among other targets, Rollinson said. Kinross said it sees its West African properties as the area to see the greatest enhancements.
Rollinson said mine optimization will be a factor going forward and that the company will focus on margin increases, rather than higher mine production at any costs.
Brant Hinze, president and chief operating officer, said how to put in place the new initiative at each mine will be determined on a case by case basis, with near-term, medium-term and long-term goals structured. "It's as much a behavioural change on all employees to focus on margin and (increasing) cash flow," he said.
Third-quarter adjusted net earnings were $250.4-million, or 22 cents a share, down from $269.4-million, or 24 cents a share versus the third quarter in 2011. Net earnings fell in part because of a one-time severance package expense of $16.4-million after Tye Burt, former chief executive officer, left. Rollinson said the package is finalized.
Third-quarter production was 672,173 gold equivalent ounces, up from 632,432 ounces produced last year at the time. The rise in output came mostly on an increase in production at Fort Knox in Alaska and Kupol in Russia, the firm said, and the rise was in line with expectations, based on the full-year mining plan.
Revenues rose 6 per cent to $1.1-billion on higher gold production. The average realized gold price in the third quarter was $1,649 per ounce, up slightly from last year's $1,644.
Production costs were $677 an ounce per gold equivalent ounce, up from $626 an ounce last year. The rise in costs stemmed from higher costs for energy, labor and consumables.
Margin fell to $972 an ounce in the third quarter, versus $1,018 last year, because of the higher costs.
Kinross said it has targeted about $200-million in capital expenditure reductions for 2012 and reduced its full-year capital expenditures outlook to $2-billion from the previous forecast of $2.2-billion. The company announced last quarter that it would embark on a cost-reduction initiative.
Capital expenditures rose to $451.2-million in the third quarter, from $389.6-million last year at that time, because of project-related spending at Tasiast, in Mauritania, with part of that offset by a decrease at Paracatu, in Brazil.
The firm announced a new three-year unsecured loan of $1.0-billion and said it increased its available credit to $1.5-billion from $1.2-billion by amending its unsecured revolving credit facility. Maturity dates were extended from March 2014 to August 2017.
OUTPUT RISE CAME FROM FORT KNOX PROPERTY
Kinross saw increased third-quarter output at its North American mines, primarily because of higher output at Fort Knox in Alaska.
Versus the third quarter 2011, Fort Knox saw increased tonnage of ore mined and processed, along with higher mill grades, mill recoveries and accelerated heap leach production. Kettle River-Buckhorn's year-over-year increase in production was a result of higher grades and recoveries, while Round Mountain saw a slight drop in yearly output because of lower grades and tonnage processed.
The rise in production at Fort Knox was as expected, Hinze said, as the firm loaded higher production into the second half of the year. He added this higher production should continue into the fourth quarter.
The firm's Kupol mine in Russia saw production rise in the third quarter over a year ago, lifted by record mill throughput, higher grades and process improvements which led to higher silver recoveries. Plant throughput has increased to over 3,500 metric tons daily on average, compared with the design throughput of 3,000 metric tons daily, due mainly to improvement initiatives. Hinze said he expects that this increased throughout should be sustainable.
The Dvoinoye project is progressing, with 52 per cent of the underground development complete and surface infrastructure 45 per cent finished. They are also working on an all-season road. The Dvoinoye project is expected to deliver its first ore to the Kupol mill in the second half of 2013.
The firm said its Tasiast mine pre-feasibility study continues to be on schedule and is expected to be done by the first quarter of 2013. In heap leach testing, gold recovery rates averaged about 60 per cent, but the firm has concluded that heap leaching isn't economically attractive and that it won't currently invest in fine crush heap leaching.
The Tasiast mine continues to be a "challenge," Rollinson said. Brandt said Tasiast is still on track to be a gold mine that produces annually 200,000 to 225,000 ounces.
Rollinson briefly mentioned the Fruta Del Norte mine in Ecuador, noting that negotiations with the Ecuadorian government continue regarding taxation changes. The company does not expect to reach any agreements regarding exploitation and investment protection for the project before 2013.
When asked if selling off assets to improve margins and cash flow would be under consideration, Rollinson said no. "We don't feel the need to sell anything. We have a strong balance sheet and lots of liquidity. M&A (mergers and acquisitions) is not at the top of the list. The first step is to look at all of our assets and how they're operating," he said.
With files from the Associated Press