Kinross: Wary days ahead with high costs and labor strike
Kinross Gold Corp. (KGC), a Canada-based gold mining company, will release its second-quarter results on August 13. The company has not provided any guidance for the quarter.
Earlier in January, Kinross had stated that it expects to produce approximately 2.4 to 2.5 million ounces of gold in 2009, up 32% year over year. Cost of sales per ounce is expected to be around $390 to $420 for the full year.
Capital expenditures for 2009 are expected to be approximately $475 million. The company anticipates exploration and business development expenses at $75.0 million for 2009. General and administrative expenses are expected to be about $110.0 million in the year.
We remain cautious about Kinross’ near-term performance due to rising cash costs and falling production at some of its existing operations. The increased costs due to poor ore grades are attributable to declining production levels across operations such as, Musselwhite, Porcupine and Round Mountain.
Moreover, the company’s debt level has gone up significantly due to recent acquisitions, including the Canada-based gold producer Bema Gold Corp. and Aurelian Resources in South America. Although these acquisitions are likely to help long-term growth, Kinross remains vulnerable to integration risk.
The slowdown in the global economy, especially in the emerging markets such as India, could also weaken demand for gold. India absorbs about 50% of global gold production.
Recently, Kinross said that workers at its La Coipa mine have initiated a strike following an unsuccessful collective agreement negotiation. One of Kinross’s subsidiaries in Chile, Compania Minera Mantos de Ore, owns and operates this mine. The company stated that the strike would affect about 300 ounces of daily gold produced at the mine. The company is continuing negotiations with the employees.
We reiterate our Hold recommendation on the shares of Kinross, with a six-month target price of $17.00.
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