Kinross Gold (KGC) Misses Q4 EPS by 2c, Offers Outlook

Kinross Gold (NYSE: KGC) reported Q4 EPS of ($0.01), $0.02 worse than the analyst estimate of $0.01. Revenue for the quarter came in at $791.3 million versus the consensus estimate of $784.3 million.

Operating results

Mine-by-mine summaries for 2014 fourth-quarter and full-year operating results may be found on pages 15 and 19 of this news release. Highlights include the following:

Americas

The region performed well, exceeding production guidance for 2014, with record full-year production at Paracatu and Maricunga. Maricunga increased production by 32% compared with 2013 as a result of continuous improvement efforts and higher grades. Paracatu increased production to 521,026 Au eq. oz. for the year as a result of a successful ore blending strategy, which combines B1 ore with harder, higher grade B2 ore through both Plant 1 and Plant 2. The higher grades and recoveries at Paracatu were offset by lower grades at Fort Knox.

In the fourth quarter, production was slightly lower compared with the previous quarter due to the October mill fire at Round Mountain, and lower grades at Maricunga, and at Kettle River-Buckhorn, which is nearing the end of its mine life. As previously reported, mill repairs at Round Mountain have commenced and the mill is on track to be re-commissioned in March 2015.

The region ended the year at the lower end of its production cost of sales guidance; nevertheless, 2014 cost of sales was higher compared with full-year 2013. The increase was mainly due to higher costs at Fort Knox, as the operation entered a phase of the mine with more operating waste and lower grades during the first three quarters of the year. Q4 production cost of sales per ounce decreased compared with Q4 2013, primarily due to lower cost of sales at Paracatu, Maricunga and Round Mountain. Improved efficiencies and increased production at Maricunga resulted in a 15% reduction in costs per ounce compared with Q4 2013 and a 19% reduction year-over-year.

Russia

The region exceeded expectations and its upwardly revised production guidance for the year. The combined Kupol and Dvoinoye operation increased production both quarter-over-quarter to 183,750 Au eq. oz. and year-over-year to 751,101 Au eq. oz. The region came in below its cost of sales guidance for the year and was in line with full-year 2013 cost of sales per ounce. Production cost of sales per ounce increased compared with the previous quarter due mainly to higher cost ounces sold from Kupol.

West Africa

The region met its production guidance for the year, with 2014 full-year production higher compared with full-year 2013. The increase was due mainly to higher mill grades at Chirano, and at Tasiast, which achieved record yearly production. At Chirano, quarterly production was up compared with Q3 2014 due mainly to higher throughput. At Tasiast, production was up slightly compared with Q3 2014 due to improved mill performance related to slightly higher throughput and recoveries.

The region met its production cost of sales guidance for the year, and full-year production cost per ounce was 12% lower compared with full-year 2013. Regional production cost of sales per ounce also decreased 16% compared with Q4 2013. The full-year decrease in cost of sales was mainly a result of the move to self-perform mining at Chirano, and continuous improvement programs.

Outlook

The following section of the news release represents forward-looking information and users are cautioned that actual results may vary. We refer to the risks and assumptions contained in the Cautionary Statement on Forward-Looking Information on page 30 of this news release.

In 2015, Kinross expects to produce approximately 2.4 - 2.6 million Au eq. oz. from its current operations, lower than 2014 production of 2.71 million Au eq. oz. This is mainly a result of anticipated lower grades at Chirano, Kettle River-Buckhorn and Dvoinoye due to mine sequencing, and reduced production from the Tasiast dump leach. Production guidance also takes into consideration power rationing in Ghana, which began in December, and the possibility of power rationing in Brazil, which may affect operations in both countries.

Production in the first quarter of 2015 is expected to be lower year-over-year, before leveling out in Q2, due to mine plan sequencing across various sites and the seasonal impact on the heap leach at Fort Knox. The lower production is expected to have a commensurate impact on production cost of sales.

Production cost of sales per Au eq. oz. is expected to be in the range of $720 - $780 for 2015, slightly higher than 2014 full-year results. This is primarily as a result of higher expected costs in West Africa due to anticipated lower production, offset by a higher proportion of lower cost ounces from the Kupol segment in the production mix. The Company has forecast an all-in sustaining cost for 2015 of $1,000 - $1,100 per Au eq. oz. sold, and per ounce sold on a by-product basis, which is slightly higher than 2014 full-year results mainly due to an increase in forecast sustaining capital expenditure and reduced gold production for 2015.

The table below summarizes the 2015 forecasts for production and average production cost of sales on a gold equivalent and a by-product accounting basis:

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                   Accounting basis                       2015 (forecast)   

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Gold equivalent basis                                                       

  Production (Au eq. oz.)                                2.4 - 2.6 million  

  Average production cost of sales per Au eq. oz.           $720 - $780     

  All-in sustaining cost per Au eq. oz.                   $1,000 - $1,100   

By-product basis                                                            

  Gold ounces                                            2.3 - 2.5 million  

  Silver ounces                                           5 - 5.5 million   

  Average production cost of sales per Au oz.               $705 - $765     

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The following table provides a summary of the 2015 production and production cost of sales forecast by region:

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                                                              Forecast 2015 

                                              Percentage of  production cost

                              Forecast 2015       total         of sales    

                               production     production(5)   ($ per Au eq. 

           Region              (Au eq. oz.)                       oz.)      

----------------------------------------------------------------------------

                                                                            

          Americas          1.3 - 1.4 million      54%          790 - 850   

West Africa (attributable)* 390,000 - 440,000      17%          850 - 920   

           Russia           710,000 - 760,000      29%          495 - 525   

                            ----------------- ------------- ----------------

           Total            2.4 - 2.6 million      100%         720 - 780   

                                                                            

*Based on Kinross' 90% share of Chirano                                     

                                                                            

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Material assumptions used to forecast 2015 production cost of sales are as follows:

• a gold price of $1,200 per ounce,
• a silver price of $18 per ounce,
• an oil price of $90 per barrel,
• foreign exchange rates of:
  • 2.5 Brazilian reais to the U.S. dollar,
  • 1.10 Canadian dollars to the U.S. dollar,
  • 40 Russian roubles to the U.S. dollar,
  • 575 Chilean pesos to the U.S. dollar,
  • 2.75 Ghanaian cedi to the U.S. dollar,
  • 290 Mauritanian ouguiya to the U.S. dollar, and
  • 1.30 U.S. dollars to the Euro.

Taking into account existing currency and oil hedges:

• a 10% change in foreign currency exchange rates would be expected to result in an approximate $14 impact on production cost of sales per ounce;
• specific to the Russian rouble, a 10% change in the exchange rate would be expected to result in an approximate $11 impact on Russian production cost of sales per ounce;
• a $10 per barrel change in the price of oil would be expected to result in an approximate $1 impact on production cost of sales per ounce;
• a $100 change in the price of gold would be expected to result in an approximate $3 impact on production cost of sales per ounce as a result of a change in royalties.

Total capital expenditures for 2015 are forecast to be approximately $725 million (including estimated capitalized interest of approximately $40 million). The $725 million in forecast expenditures is summarized in the table below:

                                                                            

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                            Forecast 2015        Forecast 2015              

                         sustaining capital non-sustaining capital   Total  

         Region               (million)            (million)       (million)

                                                                            

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        Americas                $350                  $10             $360  

       West Africa               $70                 $170             $240  

         Russia                  $80                  $0              $80   

        Corporate                $5                   $0               $5   

                         ------------------ ---------------------- ---------

          Total                 $505                 $180             $685  

  Capitalized interest                                                $40   

                                                                   ---------

          TOTAL                                                       $725  

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Sustaining capital includes the following forecast spending estimates:

• Mine development: $110 million (Americas), $25 million (Russia)
• Tailings facilities: $80 million (Americas), $30 million (Russia), $10 million (West Africa)
• Mobile equipment: $50 million (Americas), $25 million (West Africa), $10 million (Russia)
• Leach facilities: $40 million (Americas)
• Mill facilities: $35 million (Americas)

Non-sustaining capital includes the following forecast spending estimates:

• Tasiast West Branch stripping and project wrap up: $155 million
• Chirano Paboase deposit (initial development): $15 million
• Development projects/studies: $10 million

The 2015 forecast for exploration is approximately $95 million, none of which is expected to be capitalized. 2015 overhead (general and administrative expenses and business development) is expected to be approximately $205 million. The above forecast expenses include approximately $30 million related to expected equity-based compensation. Other operating costs are forecast to be approximately $50 million, including $11 million for care and maintenance costs at La Coipa.

Income tax expenses are expected to be $55 million based on our assumed gold price plus approximately 24% of any profit resulting from higher gold prices. Depreciation, depletion and amortization is forecast to be approximately $330 per Au eq. oz.

For earnings history and earnings-related data on Kinross Gold (KGC) click here.

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