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What’s Driving Higher Earnings Estimates for Kinross Gold?

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Factors impacting Kinross’s estimates

Kinross Gold (KGC) has been a high-cost gold miner compared to its peers (GDX) (RING). This high operational leverage is leading Kinross to outperform its peers. However, in the long term, it’s preferable to have lower costs in order to navigate through the volatile precious metals price environment.

KGC’s unstable production profile and geopolitical risks are also factors weighing on investors’ minds. Peers Goldcorp (GG), Yamana Gold (AUY), and Agnico Eagle Mines (AEM) have less geopolitical risk than Kinross.

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Analysts’ revenue estimates

Analysts expect Kinross’s revenue to rise by 15% to $3.5 billion year-over-year in 2016. This is mainly due to Kinross’s expectation of record gold production in 2016.

Investors should also note that Kinross acquired Nevada assets from Barrick in late 2015 to increase its production base and diversify its geographical risk. These assets are expected to contribute ~350,000 ounces in 2016. Thereafter, growth could be difficult to come by for the company. Analysts are estimating revenue growth of just 0.4% for 2017 and -4.1% for 2018.

Earnings estimates

Kinross is also guiding for lower costs in 2016 on the back of falling manpower costs and the lower Canadian dollar. These developments underpin analysts’ expectations of an EBITDA (earnings before interest, tax, depreciation and amortization) margin of 35% in 2016, which is higher than 2015’s margins. 

Kinross’s expected margins are still higher at 39.7% for 2016 and 2017 as it works toward reducing costs. Its acquired mines also have lower costs compared to its average costs.

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