Kinross Denies Southridge JV - Analyst Blog

By Zacks | December 31, 2012 AAA

Kinross Gold Corporation (KGC) recently came out with a denial statement regarding a joint venture (JV) agreement between Kinross and Southridge Enterprise Inc. ("Southridge"). The announced JV between the two parties related to the Cinco Minas and Gran Cabrera properties in Mexico. Southridge also announced that the joint partnership would be valued at about $550-$600 million.

Kinross also stated that it has no plans to strike any deal or agreement with Southridge in the future. Kinross also clarified that the statement that was attributed to the company's employee in the Southridge news release was incorrect. Last month, Kinross released its third quarter 2012 earnings. The company posted adjusted earnings of 22 cents per share in the third quarter of 2012, beating the Zacks Consensus Estimate of 19 cents but trailing the year-ago earnings of 24 cents. Net earnings, as reported, went up roughly 8.6% to $224.9 million or 20 cents from $207.1 million or 18 cents in the year-ago quarter.

Revenues increased 6.6% year over year to $1,109.7 million, aided by an increase in production. Sales came ahead of the Zacks Consensus Estimate of $1,087.0 million.

Gold production was 672,173 equivalent ounces, a 6.3% year-over-year increase, mainly due to production increases at Fort Knox and Kupol. The average realized gold price was $1,649 per ounce, up slightly from the year-ago quarter.

Production cost per gold equivalent ounce was $677 in the quarter versus $626 in the prior-year quarter. Margin per gold equivalent ounce sold was $972 in the quarter, down 5% from the prior-year quarter, mainly due to higher production cost of sales per ounce.

Kinross expects to achieve the higher end of both the production guidance of 2.5-2.6 million gold equivalent ounces from its continuing operations and its cost of sales forecast of $690-$725 per gold equivalent ounce in 2012.

Kinross, like other gold producers Barrick Gold Corporation (ABX) and Newmont Mining Corp. (NEM), benefits from rising gold prices. However, its results are constrained by rising costs and lower grades like the other players in the industry.

The company currently carries a Zacks #3 Rank, reflecting a short-term (1 to 3 months) Hold rating. We have a long-term (more than 6 months) Neutral recommendation on the shares of Kinross.

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