Kinross Gold Stock: Tasiast Harms Results (NYSE: KGC)
Kinross Gold Corp. from Toronto (NYSE: KGC) released its third quarter 2021 results on November 10, 2021.
Overview of third quarter results
Kinross Gold reported a net loss of $44.9 million, or $0.04 per share, and adjusted net income of $90.2 million, or $0.07 per share, in the third quarter of 2021. The adjusted profit was $0.25. per share a year ago.
The results were better than expected. However, let’s be honest here. Gold equivalent production was hit hard this quarter, with only 3,847 ounces produced at Tasiast.
This drop in production at Tasiast affected gold production in 3Q21. Production was 483,060 ounces, down 10.2% sequentially. Kinross sold 478,459 ounces, which significantly increased the AISC this quarter to $1,225 per ounce.
J. Paul Rollinson, President and CEO, said in the Press release:
During the third quarter, our mine portfolio performed well and we are on track to meet our revised production and cost guidance for the year. We maintained the strength of our balance sheet while improving shareholder returns as we launched our share buyback program in addition to declaring our quarterly dividend.
The main takeaway is that the Tasiast plant has now restarted production with repair costs reduced to $35 million from an initial estimate of $50 million.
Additionally, the La Coipa Restart and Tasiast 24k projects remain on schedule for completion in mid-2022 and mid-2023.
Stock market performance
Kinross underperformed the VanEck Vectors Gold Miners ETF (GDX) and Newmont corp. (NEM) on a one-year basis, mainly due to the technical problem at the Tasiast mine. KGC is now down 20% year on year.
The investment thesis has not changed despite this unfortunate incident at Tasiast, and I recommend slowly accumulating KGC on any weakness and building an average position.
One unfortunate feature is that KGC is a slow mover that usually stumbles on bad news and takes forever to recover. Investors who invest in this gold miner need patience.
For this type of business, it is crucial to trade short-term LIFO on your long-term position. It allows you to accumulate on a downtrend and take advantage of any reversal while maintaining a basic long position which you will hold for a final payday at a much higher price target.
The price of gold is recovering and is now well above $1,800 an ounce, but this is a fragile trend. The market believes that the Fed will not act against the threat of high inflation and believes that this is a temporary event. The recent dovish comment from the FED triggered a strong positive reaction with an elevated inflation report in recent days.
However, inflation is a major concern and could spin out of control, forcing the Fed to act sooner, hurting the price of gold.
Kinross Gold – 3Q21 Financial History – The Raw Numbers
|Total revenue in millions of dollars||1,131.3||1,195.1||986.5||1000.9||862.5|
|Net income in millions of dollars||240.7||783.3||149.5||119.3||-44.9|
|EBITDA in millions of dollars||589.9||1,223.2||453.4||406.5||287.0*|
|Diluted EPS in $/share||0.19||0.62||0.12||0.09||-0.04|
|Cash flow from operations in millions of dollars||544.1||681.1||279.8||388.2||269.9|
|Capital expenditures in millions of dollars||229.0||303.2||228.1||205.4||231.0|
|Free cash flow in millions of dollars||315.1||377.9||51.7||182.8||38.9|
|Total cash in millions of dollars||933.5||1,210.9||1,056.1||675.6||586.1|
|Long-term debt in millions of dollars||1,923||1,924||1,925||1,427||1,429|
|Shares outstanding (diluted) in millions||1,269||1,269||1,269||1,270||1,261|
|Quarterly dividend $/share||0.03||0.03||0.03||0.03||0.03|
Data source: company press release and Fun Trading.
* Estimated by Fun Trading
Note: Historical data for 2015 is only available to subscribers.
Gold production details for the second quarter
Total attributable gold equivalent production
Kinross Gold produced 483,060 eq. At attributable. Oz. in 3Q21, against 538,091 Au eq. Oz. in 2Q21.
CEO Paul Rollison said in the press release:
We are pleased to report that the Tasiast plant has now restarted at lower costs than initial estimates and is restarting. We expect that in December the plant will achieve sustained throughput levels comparable to the first half of the year. The plant is also on track to reach a throughput of 21,000 tonnes per day by the end of the first quarter of 2022.
Paracatu and Tasiast were the weakest links in 3Q21 and, as shown in the chart below:
Note: The three Paracatu, Kupol and Tasiast mines account for 62.3% of total gold equivalent production in 2Q21, and it dropped to 53.6% in 3Q21.
The chart below shows that AISC is now at $1,225 per GEO, up sequentially from $1,069 per ounce. AISC is exceptionally high this quarter due to lower production.
Kinross Gold: Financial Analysis
1 – Revenue was $862.5 million in 3Q21
KGC recorded a loss of $44.9 million or $0.04 per diluted share in the third quarter of 2021, compared to income of $240.7 million or $0.19 per diluted share in the same quarter ago a year.
Adjusted net income was $90.2 million for the third quarter of 2021.
3Q21 revenue decreased 23.8% year-on-year to $862.5 million.
2 – Free cash flow is an estimated gain of $38.9 million in 3Q21
Note: Generic free cash flow is operating cash flow minus capital expenditures.
Twelve-year free cash flow is $680.1 million. The company made a gain of $38.9 million in 3Q21.
The company pays a quarterly dividend of $0.03 per share, a yield of 1.86%, easily covered by free cash flow.
Note: As of November 10, 2021, Kinross had repurchased and canceled 8.6 million of its common shares for $50.0 million ($5.81) under its share buyback program.
3 – Net debt and liquidity – Excellent profile but deteriorating sequentially.
Net debt jumped sequentially to $843 million in the third quarter. The company had cash and cash equivalents of $586.1 million, with total liquidity of approximately $2.1 billion, as of September 30, 2021.
Note: On July 23, 2021, the Company amended its $1,500 million revolving credit facility to extend the maturity date by approximately two years, from August 10, 2024 to July 23, 2026.
The company needs to focus on reducing its debt before spending money on an elusive buyout program.
4 – 2021 outlook revised in the last quarter.
The company forecasts production (+/- 5%) of 2.1 million Au eq. Oz. in 2021.
Source: previous presentation
Technical analysis and commentary
Note: Chart is dividend adjusted.
KGC forms a rising/rising wedge pattern with resistance at $6.60 and support at $6.
I recommend short-term trading LIFO around 30% to 40% and keeping a long-term base position for an end goal of $8.
The pattern is indicative of increasing bearish sentiment despite a recent pattern break for gold. The RSI is now close to an overbought situation at 67, which reinforces the idea of a strong resistance.
However, the strong reversal in gold currently underway could help KGC break temporarily.
I suggest selling about 20% of your position between $6.60 and $6.75 and waiting for a clear signal. If the price of gold continues its uptrend, KGC might break out and hit $7.4.
If the FED is worried about stubborn and high inflation, the price of gold will quickly drop back below $1,800. In this case, KGC will likely fall to between $5.8 and $6, where it is reasonable to accumulate again.
So, watch the price of gold like a hawk.
Warning: The TA table must be updated regularly to be relevant. The TA chart is updated regularly for my followers, who access it through my stock tracker.
Author’s Note: If you find value in this article and would like to encourage such continued efforts, please click the “Like” button below as a vote of support. Thanks!