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Kinross Gold’s Unit Costs Improved in 2Q17: What’s the Outlook?

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Aug. 7 2017, Updated 7:40 a.m. ET

All-in sustaining costs

Kinross Gold (KGC) has been a higher-cost precious metal producer. Higher AISC (all-in sustaining costs) makes miners’ cash flows more leveraged against changes in revenues. That’s the reason Kinross Gold is highly leveraged to gold prices compared to its close peers (GDX) such as Barrick Gold (ABX), Goldcorp (GG), and Newmont Mining (NEM). That being said, Kinross Gold is trying to improve its unit costs with the addition of newer production at lower costs.

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Cost performance in 2Q17

Kinross Gold reported AISC of $910 per ounce in 2Q17, an improvement of 8.0% compared to the same quarter last year and 4.5% sequentially. The fall in AISC was due to a 10.0% improvement in production cost of sales year-over-year (or YoY). The fall is attributable to the reduction of costs at Kettle River-Buckhorn due to mining activity coming to an end, as well as the fall in volumes sold at its Maricunga and Fort Knox mines.

Improved cost structure

Kinross Gold maintained its AISC guidance of $925–$1,025 per ounce for 2017. The midpoint of $975 per ounce is lower than its actual AISC of $984 per ounce achieved in 2016.

In one of the earlier parts of this series, we looked at several growth projects that Kinross Gold is undertaking to increase its production. These projects have a lower cost structure than Kinross’s current average costs for the company. Therefore, as these new projects start contributing to higher production, the overall cost structure for Kinross should fall. In particular, the Tasiast expansion and the ramp-up of Bald Mountain should lead to significantly lower costs for the company going forward.

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