While gold shares were largely mixed in mid-day trading on Tuesday, the sector’s worst performer by a significant margin was Kinross Gold (K.TSX, NYSE: KGC), which plummeted as much as $2.21, or 17.5%, to $10.44 per share. In doing so, the Canadian-based gold miner fell to its lowest level since November 20, 2008.
Yesterday Kinross announced its 2011 production results and 2012 guidance. The Company stated that 2011 production is expected to come in at 2.6 million gold equivalent ounces, within its previously-stated forecast. In the coming year, production is expected to be between 2.6 and 2.8 million ounces.
Commenting on the results, Macquarie analyst Tony Lesiak noted that the figures were also in-line with his estimates. However, the more concerning parts for Lesiak were that Kinross “announced a capital review and project optimization process for its major development projects—Tasiast, Lobo Marte, and FDN—despite already having announced capital increases less than six months ago…Capital costs for the existing mines, running almost double current depreciation rates, were well above our expectations.”
Lesiak went on to note that “Kinross announced a 6–9 month delay in the Tasiast feasibility study to allow for further optimization work including the assessment of various processing options. Given the already tight development timeline and the potential onerous cost to maintain it, we believe Tasiast production could be delayed from mid-2014 to late 2015. Kinross announced it will be writing-off a ‘material’ portion of the $4.6bn of goodwill associated with the Red Back acquisition, further eroding confidence.”
As a result of the disappointing news, the Macquarie analyst downgraded K.TSX to Neutral from Outperform and lowered his price target to C$16.50 from C$19.50. Additionally, he removed the Company from its list of “Top Picks” in the gold sector. ”Kinross’ decision to reassess its growth pipeline mere months before the forecast release of four key feasibility studies is alarming,” he added. “We believe Kinross’ growth profile, cost structure, ability to fund and execute its pipeline and its management could now come under greater scrutiny.”
Today’s sell-off in Kinross shares marks the latest in a series of disappointing developments for the Company. In 2011 shares of KGC tumbled 39.5% amid escalating operational challenges and broad-based liquidation in precious metals equities. The decline in KGC also is the latest in a series of dismal investment positions for hedge fund magnate John Paulson, whose firm – Paulson & Co. – has been one of the largest Kinross shareholders in recent years.
In contrast to Kinross, the AMEX Gold Bugs Index (HUI) dipped just 0.4% to 517.16 in mid-day trading.
Spanish Mountain Discovers New Gold Zone at Flagship Property
- 92.46 m grading 0.58 gram per tonne (g/t) gold including 7.50m grading 4.12 g/t gold in Hole 11-CCR-030
- 55.40 m grading 0.82 g/t gold and a second interval of 47.50 m grading 0.35 g/t gold in Hole 11-CCR-023
- 56.71 m grading 0.50 g/t gold in Hole 11-CCR-021
- 15.75 m grading 0.48 g/t gold at bottom of hole in Hole 11-CCR-003
