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Can Kinross Improve Cost Performance to Bridge Gap with Peers?

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First-quarter cost performance

Kinross Gold (KGC) reported all-in sustaining costs of $925 per ounce in the first quarter, reflecting an increase of 9.3% YoY but an improvement of 3.7% sequentially. Lower contractor expenses and maintenance supplies helped the costs improve sequentially.

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Higher cost producer

Kinross Gold is a high-cost gold producer compared to its closest peers. These higher costs, in turn, make its cash flows more leveraged to changes in precious metal prices (GLD). In the first quarter, Agnico Eagle Mines (AEM) had an AISC of $836 per ounce, Barrick Gold’s (GOLD) AISC was $825 per ounce, and Newmont Goldcorp’s (NEM) AISC came in at $907 per ounce.

Cost guidance

Kinross Gold is guiding for all-in sustaining costs of $995 per ounce with a variance of 5% on either side for 2019. This is higher than KGC’s AISC of $965 in 2018. The expectation of higher costs is due to higher sustaining capital as a result of stripping at Bald Mountain as the company completes its Vantage project and begins production in the south area.

While new projects could help Kinross lower its costs, as they have a better cost structure than Kinross’s current average costs, if the Tasiast expansion remains on hold for too long, investors’ sentiments could sour.

Among cost improvement initiatives, the company is also targeting areas such as operational improvements in mining, milling, and maintenance.

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