Reversing course from a 2% drop through April, shares of Kinross Gold (NYSE:KGC), a global leader in gold mining, shot up 27% through May on the heels of a surprisingly good first-quarter earnings report.
Although Kinross Gold reported a 2.3% year-over-year decrease in gold production, revenue climbed 1.7% in the first quarter of 2017 compared with the same period last year, thanks to stronger gold prices. Whereas the company reported an average realized gold price per ounce of $1,179 in Q1 2016, it reported $1,200 in Q1 2017. More significant than revenue, however, was the influence gold prices had on operating earnings -- one that helped to effect a 14% year-over-year increase. According to its quarterly report, the increase in operating earnings was "primarily due to the increase in metal prices realized."
In addition to Kinross Gold's financial performance, investors celebrated the company's progress on its organic projects. For example, Kinross reported that advanced engineering work of the Vantage Complex at Bald Mountain was 60% complete at the end of the quarter; moreover, major construction is still expected to begin in the first half of 2018. And at the Tasiast mine in Mauritania, development of the phase 1 project remains on schedule and on budget; management reaffirmed its expectation that full production will be achieved in Q2 2018.
Lastly, investors took kindly to comments that Kinross remains on track to meet both gold production and cost guidance. Besides reaffirming its confidence that it will meet gold production of 2.5 million to 2.7 million ounces for fiscal 2017, management reaffirmed its outlook of all-in sustaining costs (AISC) of between $925 and $1,025 per gold ounce for fiscal 2017.
If the company achieves the midpoint of this guidance, it will represent an improvement over the $984 in AISC it reported in fiscal 2016. Similarly, management reaffirmed its outlook of production cost of sales between $660 and $720 per gold ounce. Should the company report $690 production cost of sales -- the midpoint of this range -- it will represent an improvement over the $712 the company reported in fiscal 2016.
Successful execution of the expansionary projects at Tasiast are important for the company's future success. Management estimates that, when complete, the phase 1 project will effect an increase production of approximately 400,000 gold equivalent ounces per year, at an all‐in sustaining cost of $760 per gold equivalent ounce.
In the coming quarters, investors should keep a keen watch on the development of these projects, confirming that the company continues to execute them both on time and on budget. According to management's estimates, successful execution of the projects will result in internal rates of return of 20% and 17% for phases 1 and 2, respectively.