Kinross Misses on Higher Costs, Lower Grade Ores (KGC, RGLD, ABX, NEM)

Kinross Gold Corp. (NYSE: KGC) reported second-quarter adjusted earnings per share (EPS) of $0.14 and $1 billion in revenue after the markets closed last night. The company posted EPS of $0.24 for the same period a year ago, and last year’s revenue totaled $1.07 billion. The results compare to the Thomson Reuters consensus estimates for EPS of $0.21 and $1.14 billion in revenue.

The company revised third-quarter production guidance downward, from 2.6 to 2.8 gold equivalent ounces to 2.5 to 2.6 million ounces following its sale of its 50% stake in a Brazilian mine. The company also revised production costs upward slightly, from $670 to $715 per ounce to $690 to $725 per ounce, reflecting a rise in West African and South American costs.

The company’s recently appointed CEO, J. Paul Rollinson, said:

I’ve been given the mandate from the Board to ensure that we deliver on the capital and project optimization process we announced earlier this year. This means striking the right balance between the objective of growing the business and generating free cash flow. It also means taking the time to get our growth projects right in terms of scale, sequencing, timing, and capital, in order to deliver the best return from every dollar we invest while maintaining our financial strength and liquidity.

Kinross also announced the appointment of Brant Hinze, formerly the company’s executive vice-president and chief operating officer, to the post of president and COO. Like Rollinson, Hinze brings a finance and accounting background to the job.

The company said that its realized price for the quarter was $1,568 a ounce of gold, compared with $1,448 a ounce in the same period a year ago. Production costs rose to $725 a ounce from $569 a ounce “mainly due to increased processing of lower grade ore, as well as higher costs for energy, labour, and consumables.”

For comparison, Royal Gold Inc. (NASDAQ: RGLD), which reported full-year and fourth quarter results this morning, obtained an average price of $1,673 a ounce for the year, up from $1,369 a ounce in 2011. But Royal Gold missed both the full-year and quarterly EPS consensus estimates, and revenues were also light. Royal Gold owns only shares in production royalties, and thus reports no production costs.

Following the appointment of its new chief executive, there has been some speculation that Kinross will either be acquired or broken up. With a market cap of nearly $9 billion, the company could only be acquired by one of the biggies like Barrick Gold Corp. (NYSE: ABX) or Newmont Mining Corp. (NYSE: NEM), neither of which is likely to want to pony up that kind of cash. Alternatively, Kinross may seek buyers for some of its better operations with the idea of financing development of its more promising prospects. Prospective buyers are also scarce on the ground, but perhaps a Chinese buyer could be flushed out.

Shares in Kinross are down about 4% in premarket trading at $7.83. The current 52-week range is $7.11 to $18.25. Thomson Reuters had a consensus analyst price target of $12.15 before today’s results were announced.

Paul Ausick