In a May 8 research note, Andrew Kaip, a BMO Capital Markets analyst, reported that Kinross Gold Corp. (K:TSX; KGC:NYSE) achieved "a solid earnings beat on strong production and lower costs" in Q1/18, but concerns involving the Mauritanian government "could overshadow Q1 results until more information is available."
As for Kinross' Q1/18 results, adjusted earnings per share were $0.10 versus estimates of BMO, $0.06, and consensus, $0.05. "The beat was attributable to higher production and lower operating costs," Kaip explained.
During Q1/18, the company produced 654 thousand ounces (654 Koz) of gold equivalent (Au eq), more than BMO's estimated 630 Koz. Contributors were "strong results at Bald Mountain and higher-than-expected residual leaching ounces at Maricunga," noted Kaip. Q1/18 sales of Au eq were 668 Koz, exceeding the total ounces produced.
Kinross' all-in sustaining cost (AISC) in Q1/18 was $846 per ounce, well below BMO's estimate of $1,015 per ounce.
The mining firm reiterated 2018 guidance of 2.5 million ounces Au eq at an AISC of $975 per ounce. It maintained its capital guidance for the year at $1,075M.
Operating cash flow was $294 million ($294M), above BMO's expectation of $263M. Similarly, free cash flow of $32M exceeded BMO's forecast of $24M due to greater cash flow and slightly lower-than-estimated capex.
At Q1/18's end, Kinross had $998M in cash and cash equivalents and $1,567M in available credit.
The company's current issue involves its Tasiast mine in Mauritania and the government of that country. Phase 1 of the Tasiast expansion remains on schedule and on budget to reach 12 thousand tons per day of production by the end of June 2018.
However, following the denial earlier in Q2/18 of a development permit for this project, the Mauritanian government recently notified Kinross of its "desire to enter into mutually beneficial discussions regarding the company's activities in country," Kaip relayed. The company is "assessing the situation and the potential impact on its phase 2 expansion at Tasiast." More information is needed, added Kaip.
BMO has a Market Perform rating on Kinross.
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Disclosures from BMO Capital Markets, Kinross Gold, May 8, 2018
Analyst's Certification: I, Andrew Kaip, hereby certify that the views expressed in this report accurately reflect my personal views about the subject securities or issuers. I also certify that no part of my compensation was, is, or will be, directly or indirectly, related to the specific recommendations or views expressed in this report.
Analysts who prepared this report are compensated based upon (among other factors) the overall profitability of BMO Capital Markets and their affiliates, which includes the overall profitability of investment banking services. Compensation for research is based on effectiveness in generating new ideas and in communication of ideas to clients, performance of recommendations, accuracy of earnings estimates, and service to clients.
Analysts employed by BMO Nesbitt Burns Inc. and/or BMO Capital Markets Limited are not registered as research analysts with FINRA. These analysts may not be associated persons of BMO Capital Markets Corp. and therefore may not be subject to the FINRA Rule 2241 restrictions on communications with a subject company, public appearances and trading securities held by a research analyst account.
Company Specific Disclosures
Disclosure 2: BMO Capital Markets has provided investment banking services with respect to Kinross Gold within the past 12 months.
Disclosure 4: BMO Capital Markets or an affiliate has received compensation for investment banking services from Kinross Gold within the past 12 months.
Disclosure 5: BMO Capital Markets or an affiliate received compensation for products or services other than investment banking services within the past 12 months from Kinross Gold.
Disclosure 6A: Kinross Gold is a client (or was a client) of BMO Nesbitt Burns Inc., BMO Capital Markets Corp., BMO Capital Markets Limited or an affiliate within the past 12 months: A) Investment Banking Services Disclosure
6C: Kinross Gold is a client (or was a client) of BMO Nesbitt Burns Inc., BMO Capital Markets Corp., BMO Capital Markets Limited or an affiliate within the past 12 months: C) Non-Securities Related Services. Disclosure
8A: BMO Capital Markets or an affiliate has a financial interest in 1% or more of any class of the equity securities of Kinross Gold.
Disclosure 8C: BMO Capital Markets or an affiliate has a financial interest in 0.5% or more in the issued share capital of Kinross Gold.
Disclosure 9: BMO Capital Markets makes a market in Kinross Gold.
Disclosure 16: A BMO Nesbitt Burns Inc. research analyst has extensively viewed the material operations of Kinross Gold.
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