What Led to Kinross Gold’s Higher Costs in the Second Quarter?



All-in sustaining costs

Compared to its closest peers, Kinross Gold (KGC) has been a high-cost gold producer. Higher costs make its cash flows more leveraged against changes in revenue. As a result, Kinross is highly leveraged to gold prices compared to its peers (GDX) Goldcorp (GG), Barrick Gold (ABX), and Newmont Mining (NEM).

In this part of the series, we’ll see how Kinross Gold is trying to improve its unit costs.

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Cost performance in Q2 2018

Kinross Gold reported AISC (all-in sustaining costs) of $1,018 per ounce in Q2 2018, reflecting an increase of 12% YoY (year-over-year) and 20% sequentially. Here are the main factors contributing to the increase in costs:

  • higher fuel costs
  • increase in operating waste mined and higher reagent costs at Tasiast
  • increase in operating waste mined at Fort Knox

These increases were partially offset by lower production cost of sales as mining activities completed at Kettle River–Buckhorn.

AISC guidance

Kinross Gold has maintained its AISC guidance of $975 per ounce for 2018 with a plus or minus 5% variance, which is largely in line with the company’s 2017 AISC per ounce. As we saw earlier, KGC is guiding for slightly lower production in 2018 compared to 2017. Lower production is one of the variables that’s keeping its unit costs almost flat for 2018.

Going forward, the company could lower its unit costs even more. New projects undertaken to increase production could also help reduce its unit costs. These projects have a lower cost structure than Kinross’s current average costs. If the Tasiast expansion remains on hold too long, investor sentiment could sour going forward.


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