What Led to Higher Costs for Kinross Gold in 3Q16?



All-in sustaining costs

Higher AISC (all-in sustaining costs) makes mining companies’ cash flows much more leveraged against changes in revenues. That’s why gold miners aim to reduce their AISCs in volatile gold price environments such as the current one.

That said, Kinross Gold (KGC) is a high-cost producer compared to senior miners (GDX) such as Barrick Gold (ABX), Goldcorp (GG), and Newmont Mining (NEM). In this part of the series, we’ll look at Kinross Gold’s cost performance in 3Q16 and its guidance for 2016.

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Operational performance

Kinross Gold reported AISC of $1,001 per ounce in 3Q16, which is 6.4% higher YoY (year-over-year) and 1.3% higher sequentially. The production cost of sales rose during the quarter due to the temporary suspension at Tasiast, higher costs at Fort Knox and Chirano, and a fall in high-margin ounces from Kupol-Dvoinoye.

During its 3Q16 earnings call, Kinross’s CFO (chief financial officer) Tony Giardini said that “from a currency point of view, we’ve probably seen about $15 per ounce impact in terms of where currencies are relative to assumptions and those factor into the cost structure.”

Improved cost structure

Kinross Gold expects to reach the higher end of its guidance range for production cost of sales at $675–$735 per GEO (gold equivalent ounce) and AISC of $890–$990 per GEO.

Over the longer term, Kinross’s cost structure should fall as its new projects start contributing to higher production at lower costs. In particular, Kinross’s CEO (chief executive officer) Paul Rollinson mentioned during the earnings call that the completion of Tasiast phase one and the ramp-up of Bald Mountain should lead to significantly lower costs for the company going forward.


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