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Behind Kinross’s Weak Production Performance in West Africa

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Decline in Tasiast production

Kinross Gold’s (KGC) West Africa operations consist of Tasiast in Mauritania and Chirano in Ghana. The gold production at Tasiast decreased in 3Q15 as compared to 2Q15, mainly due to the wind-down of dump leach production.

The year-over-year (or YoY) production also took a 12% hit as mill grades declined due to planned mine sequencing. Lower production and lower gold prices led to lower sales to the extent of 20% YoY in 3Q15. The production cost of sales were slightly lower than 3Q14 due to lower fuel costs and reduced consumption of reagents.

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Weak performance at Chirano

Kinross acquired a 90% stake in Chirano in 2010 after the acquisition of Red Back Mining, Inc. The government of Ghana holds the remaining 10% of the stake. Chirano also reported lower gold production YoY as a result of expected lower grades due to declining contribution from the Akwaaba underground deposit. On the other hand, production cost of sales were higher by 11% YoY due to an increase in power costs.

Extending Chirano’s mine-life

Kinross is continuing work to extend Chirano’s estimates mine-life by one year to 2020. The development of decline at the Akoti deposit advanced into the third quarter of 2015. Plus, 250 meters of the decline was developed until September 30, 2015. The company expects to mine additional underground ounces at two known mineral deposits, Paboase and Akoti, with Akoti expected to start producing ore in the second half of 2016.

Kinross’s peers, including Yamana Gold (AUY), Agnico-Eagle Mines (AEM), and AngloGold Ashanti (AU) are also taking steps to increase production in order to lower costs.

If you don’t want to invest directly in individual miners, the VanEck Vectors Gold Miners ETF (GDX) provides an alternative route to exposure in the sector. GDX invests in senior and intermediate miners, including AngloGold Ashanti (AU) and Kinross (KGC), which make up 3.7% and 2.8%, respectively, of GDX’s total holdings.

To get exposure to gold prices, investors can also invest in gold-backed ETFs such as the SPDR Gold Shares ETF (GLD) and the iShares Gold Trust ETF (IAU).

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