Kinross Gold Corporation Q1 Earnings Disappoint: Time to Book Profits on the Stock?

Kinross Gold Corporation (TSX:K)(NYSE:KGC) continues to struggle with high costs and wider losses.

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If investors in Kinross Gold Corporation (TSX:K)(NYSE:KGC) are wondering if the massive rally in the stock is overdone, they may have a point. The gold miner released its first-quarter earnings yesterday, and the report lacked any fresh catalyst that could justify another run up in the stock. While Kinross confirmed that it is proceeding with a key expansion project, the news isn’t enough to remain bullish about Kinross. Here’s why.

Q1 a dampener

Here’s a quick snapshot of the key numbers from Kinross’s first quarter (all year-over-year comparisons):

  • Revenue: Flat at US$782.6 million
  • Gold production: Up 9%
  • All-in-sustaining costs (AISC): US$963 per ounce of gold compared to US$964 per ounce in Q1 2015
  • Net losses: More than doubled to US$13.9 million

Kinross blamed low prices of gold for wider losses in Q1. It realized US$1,179 per ounce versus US$1,218 per ounce in the year-ago quarter. While that has been an industry-wide trend, with peers like Yamana Gold Inc. (TSX:YRI)(NYSE:AUY) and Barrick Gold Corp. (TSX:ABX)(NYSE:ABX) also realizing 2-3% lower prizes for gold in their respective first quarters, Kinross is lagging behind in an area that matters most for gold miners right now: AISC.

So while Kinross reported flattish AISC in Q1, Barrick’s Q1 AISC was down a whopping 24% year over year to US$706 per ounce of gold. If you think that’s an unfair comparison given Barrick’s size and greater economies of scale, consider that Yamana Gold also lowered its AISC by 10% to US$804 per ounce in Q1.

That tells us two important things about Kinross: its AISC is among the highest in the industry, and the company is failing to lower its costs, unlike its rivals. Also, while Barrick improved its full-year AISC guidance in Q1, Kinross re-iterated its outlook of US$890-990 per ounce. While hitting the lower end of the range would translate into 10% lower AISC compared with 2015, Kinross still needs to do a lot to catch up with Yamana and Barrick to break the US$800 per ounce mark.

Its Tasiast mine should help.

This news is gold, but old

Kinross upped its capital expenditures guidance in Q1 as it expects to spend US$160 million in expanding Tasiast to double production volumes and lower production cost of sales by nearly 50%. That could go a long way in lowering Kinross’s AISC, given that Tasiast’s production cost was around US$975 per ounce in the first quarter. Meanwhile, the company’s acquisitions at Nevada should also drive costs lower as production ramps up.

The only catch, and a big one at that, is that the Tasiast expansion is old news as Kinross had already announced the program in March. The stock has gained a staggering 62% since then, despite gold gaining only about 4%. In other words, the optimism around Tasiast and the resultant potential lower AISC is well baked into Kinross’s stock price.

The bottom line? Kinross’s first-quarter report lacks fresh catalysts to suggest further upside in the stock going forward.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Neha Chamaria has no position in any stocks mentioned.

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