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What Factors Impacted Kinross’s Costs in 1Q16?

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All-in sustaining costs

Higher AISC (all-in sustaining costs) makes mining companies’ cash flows much more leveraged against changes in revenues. This is why gold miners aim to reduce their AISCs in the current volatile gold price environment. Kinross Gold (KGC) is a relatively higher cost producer as compared to senior miners such as Barrick Gold (ABX), Goldcorp (GG), and Newmont Mining (NEM). In this article, we’ll look at Kinross’s cost performance in 1Q16 and its guidance for 2016.

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Operational improvements

Kinross reported AISC of $963 per ounce in 1Q16, which is essentially flat year-over-year (or YoY) and is a sequential reduction of 2.8%. The company’s Paracatu, Maricunga, and Kupol-Dvoinoye mines reached near-record-lows in their production costs of sales per ounce with levels not seen since 3Q11. While Brazil, Russia, and Argentina all benefitted from weaker currencies compared to the US dollar (USDU) (UUP), the strong operational performance such as from Kupol-Dvoinoye also led to the improved cost performance.

Factors impacting costs

The following factors impacted Kinross’s costs in 1Q16:

  • higher production owing to recent Bald Mountain and Round Mountain acquisitions from Barrick Gold
  • continued focus on cost reduction including C1 initiatives and streamlined procurement
  • favorable oil prices (USO) (UCO) and foreign exchange rates, which resulted in a benefit of $23 per ounce to Kinross’s cost of sales versus its budget

The company maintained its production cost of sales at $675-$735 per gold equivalent ounce (or GEO) and AISC of between $890 and $990 per GEO.

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