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What Would It Take for KGC to Increase Production Sustainably?

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Production growth

Kinross Gold (KGC) produced 586,260 gold equivalent ounces in the third quarter, a 10% fall YoY (year-over-year). Its third-quarter production fell YoY, mainly due to the following:

  • completion of mining activities at Kettle River-Buckhorn in the second quarter of 2017
  • lower production at Kupol and Round Mountain due to grade falls
  • lower production at Fort Knox due to pit wall slide in the first quarter and heavier-than-average rainfall in the third quarter

Kinross’s quarterly production was its lowest in years in the quarter. Most of the above-listed factors were also responsible for the company’s 9% YoY fall in production in the first nine months of the year. What’s more disappointing is that its production profile has been on a declining trend, as we can see in the graph above.

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Issues at mines

Kinross Gold’s production growth has been plagued by persisting issues at several of its mines. Some of these issues are temporary, while others are not. Round Mountain, for example, has been one of the major contributors to the company’s lower production year-to-date. This mine is affected by the capital development activity related to its Phase W project. It should return to normal operations once the development work is done, after which production should actually increase owing to the new phase.

The Fort Knox mine is also having a challenging year—first with a wall slide and then with heavier-than-average rainfall. Its fourth-quarter performance is expected to be similar to its third-quarter performance. Kinross mentioned during its earnings call that in 2020, it expects to recover ounces that resulted from deferrals in the first quarter of 2018.

On the bright side, Kinross’s Paracatu mine in Brazil is having a great year given its strong operating performance and improved recoveries. It has also started benefiting from lower power costs, as it acquired a power plant during the quarter.

The company is trying to replace maturing production through new growth projects. The Tasiast expansion is a major step in this direction. However, there aren’t many projects in the pipeline right now, and this could result in a significant rise in the company’s production growth in a few years.

Production guidance reaffirmed

For 2018, Kinross reiterated its production guidance of 2.5 million ounces with a plus or minus 5% variance. It also expects production to be at or slightly above that level over the next three years.

Kinross’s peers (GDX) (GDXJ) are also trying to raise their production levels. Goldcorp (GG), Newmont Mining (NEM), and Agnico Eagle Mines (AEM) all have stable production profiles.

Now that we’ve looked at Kinross Gold’s production progression, let’s look next at the progress of its growth projects and the impact on its future production.

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