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What Led to Weaker Production Performance for Kinross in 2Q16?

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Nov. 20 2020, Updated 4:59 p.m. ET

Production growth

Kinross Gold (KGC) produced 671,267 GEOs (gold equivalent ounces) in 2Q16, which represents a 1% YoY (year-over-year) rise but a sequential decrease of 2%. The company’s strong performance in US operations, Russia, and Brazil compensated reductions in its West Africa and Chile operations. The company still remains on-track, however, to achieve its full-year guidance.

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Americas

Fort Knox performed well in 2Q16, with production higher than the previous quarter due to high mill throughput and higher recoveries. Kinross’s recently acquired assets, Round Mountain and Bald Mountain, also continued to perform well. Kinross added 2.4 million ounces to the company’s estimated inferred mineral resources at Round Mountain. Bald Mountain, on the other hand, benefitted due to higher ore mined and processed during the quarter.

Due to lower rainfall at Paracatu, the company expects to suspend operations at the mine’s Plant 1 facility in the second half of the third quarter.

Russia

The Kupol and Dvoinoye mines continue to outperform the company’s expectations. For this reason, the company expects to reach the high end of production and the low end of cost guidance for 2016.

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West Africa

In contrast with its Russian operations, the company expects volumes from its West African region to hit the low end, while costs should remain toward the high end. In 2Q16, an 18-day strike at Tasiast and the transition of the Chirano mine into a Paboase underground deposit led to a weak performance in the West African region.

Factors driving future growth

The company expects to convert a substantial part of Bald Mountain’s 4 million ounces of resources to reserves as it continues with infill drilling. The current mine plan assumes a conversion of 30% of resources upon receipt of permits. This should support high production and enhance the life of the operation.

The company maintained its guidance for 2016 at between 2.7 million and 2.9 million GEOs, which would be a record for the company’s production, and its acquisition of Nevada assets should meanwhile help it reduce its geographical risk. Peers Goldcorp (GG), Yamana Gold (AUY), and Agnico-Eagle Mines (AEM) have lower geopolitical risk than Kinross.

Notably, Yamana and Agnico Eagle make up 8.4% of the VanEck Vectors Gold Miners ETF’s (GDX) holdings. Investors who prefer a low-risk environment might want to invest in physical gold or ETFs that track gold prices such as the SPDR Gold Trust ETF (GLD) and the iShares Gold Trust ETF (IAU).

Continue to the next part for a discussion of Kinross’s costs in 2Q16.

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