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Can Kinross Gold Sustain Its Price Momentum after 3Q17 Results?

PART:
1 2 3 4 5 6 7
Part 4
Can Kinross Gold Sustain Its Price Momentum after 3Q17 Results? PART 4 OF 7

Kinross Gold’s Unit Costs in 2018 and Beyond

All-in sustaining costs

Compared to its closest peers, Kinross Gold (KGC) has been a higher-cost gold producer. Higher costs make its cash flows more leveraged against changes in revenues. Because of that, Kinross Gold is highly leveraged to gold prices compared to its peers (GDX) Goldcorp (GG), Barrick Gold (ABX), and Newmont Mining (NEM). In this part of the series, we’ll see how Kinross is trying to improve its unit costs.

Kinross Gold’s Unit Costs in 2018 and Beyond

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Cost performance in 3Q17

Kinross Gold reported AISC (all-in sustaining costs) of $937 per ounce in 3Q17 compared to $910 per ounce in 2Q17 and $1,001 per ounce in 3Q16. The 6.4% YoY (year-over-year) fall in AISC is mainly due to the decrease in production cost of sales and lower sustaining capital expenditures. The production cost of sales fell 11% YoY, mainly due to a decrease in gold equivalent ounces sold at Paracatu, Maricunga, and Fort Knox. The increased production cost of sales at Bald Mountain and Tasiast offset that decline to some extent.

Improved cost structure

Kinross Gold maintained its AISC guidance of $925–$1,025 per ounce for 2017. However, it said the company is tracking the lower end of the guidance for the year. It’s worth noting that the midpoint of $975 per ounce is lower than its actual AISC of $984 per ounce achieved in 2016.

Going forward, the company could lower its unit costs even further. New projects being undertaken to increase production could also help reduce its unit costs. These projects have a lower cost structure than Kinross’s current average costs. In particular, the Tasiast expansion and the ramp-up of Bald Mountain could lead to significantly lower costs for the company going forward.

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