Factors impacting Kinross’s estimates
Kinross Gold (KGC) has underperformed its peers YTD (year-to-date), returning -31.5%. The VanEck Vectors Gold Miners ETF (GDX) has returned -14.5%. The SPDR Gold Trust ETF (GLD), which tracks gold’s physical price, has returned -6.4%. Geopolitical concerns have kept the pressure on KGC in 2018.
Kinross Gold’s second-quarter results were in line, but its lower revenues due to lower production disappointed investors. Its costs were also higher than expected. It announced a temporary halt to expansion work at its Tasiast Phase Two mine in Mauritania following a request from the government to talk about improving the country’s economic benefits from KGC’s activities.
In April, when the United States imposed fresh sanctions on Russia, the stock plunged. Despite the company’s earnings beat in the first quarter, the stock came under pressure in May. Its application for the conversion of its Tasiast Sud exploration permit into an exploration permit was rejected again on May 8 by the government of Mauritania, which stated its desire to enter into mutually beneficial discussions.
Compared to Kinross Gold, (GDX) Newmont Mining (NEM), Goldcorp (GG), Barrick Gold (ABX), and Agnico Eagle Mines (AEM) have lower geopolitical risks due to their exposure to safer mining jurisdictions.
Analysts’ revenue estimates
Kinross Gold’s revenue estimate for 2018 is $3.27 billion, which would represent an annual decline of 1.0%. Its production guidance implies a 6.4% fall in production YoY (year-over-year) in 2018.
Its revenues are expected to remain flat or rise marginally in the medium term. While Kinross has growth projects in the pipeline, most of them are expected to contribute to long-term growth rather than short- or medium-term growth.
While Kinross Gold’s revenues may shrink in the medium term, its margins may not. Kinross Gold’s EBITDA estimates imply a significant YoY rise. Its expectation of EBITDA of $1.17 billion in 2018 implies a rise of 8.6% from 2017. The company’s production costs have fallen, boosting its margins.