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Why Analysts Estimate Higher Margins for Kinross Gold

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Factors impacting Kinross’s estimates

Kinross Gold (KGC) has had a strong operating performance YTD (year-to-date). The execution of its projects has also been impressive, which led to it significantly outperforming its peers (GDX) (RING) YTD. Mining companies Goldcorp (GG), Yamana Gold (AUY), and Barrick Gold (ABX) have been negatively impacted by company-specific factors, resulting in negative returns. Kinross has improved its operational performance significantly, leading to outperformance in 2017.

Analysts’ revenue estimates

According to the Wall Street analyst consensus, Kinross is expected to have revenues of $3.4 billion in 2017. That implies a fall of 3.2% YoY (year-over-year), which was expected. It’s worth noting that it’s still lower than the guided 7% fall in production.

In the medium term, the company’s revenues are expected to decline. Analysts are estimating its revenues to fall 1.5% in 2018 and 2.8% more in 2019. While it has projects in the pipeline, they’re dated later, so its production growth is expected to start about four years from now.

Earnings estimates

Unlike its revenues, Kinross’s margins aren’t in a declining trend. Analysts are estimating EBITDA (earnings before interest, tax, depreciation, and amortization) of ~$1.2 billion for 2017. That implies an impressive growth of 43% YoY. Its margins are also expected to rise to 36.3% in 2017 compared to actual margins of 24.6% in 2016. Due to its cost reduction, analysts are projecting margins to further increase to 39% in 2018.

The company’s costs are expected to fall as new projects come online. These new projects have costs that are lower than the company’s average costs.

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