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What Were the Main Factors in Kinross’s Production Guidance?

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Kinross’s production

In an uncertain gold price (GLD) (IAU) environment, gold miners are trying to increase their production levels with minimal additional costs through productivity and operational enhancements. Kinross Gold (KGC) is also trying to achieve higher production every quarter.

In 4Q15, the company produced 623,700 GEO (gold equivalent ounces), which is a decline of 7% year-over-year, mainly due to the temporary curtailment of operations at the Paracatu mine due to a lack of rainfall. Lower mill grades at the Chirano mine also contributed to the decline. The company, however, achieved in the high end of its fiscal 2015 production guidance of 2.5–2.6 GEO by producing 2.59 GEO.

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Record production guidance

For fiscal 2016, Kinross expects to produce a record 2.7–2.9 million GEO. The forecast is higher than the GEO for fiscal 2015 due to the acquisition of the Bald Mountain mine and 50% of the Round Mountain mine from Barrick Gold (ABX), which is expected to contribute ~350,000 ounces.

Guidance considerations

For the company’s fiscal 2016 guidance, management took into consideration the grade reduction at the Kupol and Chirano mines and the expected closure of the Kettle River-Buckhorn mine in 3Q16. The guidance also accounts for a potential curtailment of operations at the Paracatu mine due to excessive rainfall. Given that January received sufficient rainfall, the expectation of a shutdown in the first half of 2016 is low, which may have led to the fiscal guidance being more conservative. The company also stated that the production in 2H16 is expected to be higher than in the first half of the year, mainly due to mine sequencing at the Tasiast mine and the seasonal impact of heap leaching at the Fort Knox, Bald Mountain, and Round Mountain mines.

While the production growth for miners such as Sibanye Gold (SBGL), New Gold (NGD), and Agnico Eagle Mines (AEM), has been strong, for others, such as Barrick Gold (ABX) and AngloGold Ashanti (AU), production growth may be lower, mainly due to non-core asset sales. Sibanye makes up 2.1% of GDX’s holdings. In the next part of this series, we’ll see how costs, another important variable for miners, are going to look like in 2016 for Kinross.

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