Key Points
- Kinross reported revenues of US$3,466.3m, down by 8.3% from US$3.78bn in FY13. Note that, the average realised gold price was down by 10% year on year to US$1.260/ounce
- Kinross had a record production of 2.71m ounces, compared with 2.6m ounces in FY13
- It reported net operating cash flows of US$858.1m up from US$796.6m in the prior year. After allowing for capex, free cash flows in FY14 were a positive US$226.3m versus the previously negative free cash flow
- All-in sustaining cost of US$973/ounce, compared with US$1,082/ounce for FY13
- Cash on hand of US$1.03bn was up by US$231.3m from the prior year. This was driven by higher net operating cash flows of US$858.1m and cash proceeds of $150m received from the sale of one of its mines, which meant less capital expenditures
- Gross debt of $2.1bn remains unchanged from the prior year, while net debt is lower at US$1.1bn versus US$1.3bn
- Kinross’ reported net loss of US$1.47bn includes an after-tax, non-cash impairment charge of $932.2mn and an inventory write down of $167.6m
- Kinross’ total estimated proven and probable gold reserves were 34.4 million ounces at year-end 2014, which equates to 13.8 years based on FY15 production. This compares with 42.8 million ounces at year-end 2013. The net year-over-year decrease was mainly as a result of a reclassification to measured and indicated mineral resources at one of its mines, based on a decision not to extend environmental permits for the project at this time
- Russia: The region exceeded expectations and its upwardly revised production guidance for the year. The combined operation increased production both quarter-over-quarter to 183,750 ounces and year-over-year to 751,101 ounces. The region came in below its cost of sales guidance for the year and was in line with full-year 2013 cost of sales per ounce
FY15 Outlook
- Kinross expects to produce approximately 2.4-2.6m ounces (downwards of FY14) at an AISC of US$1,000 - $1,100 per ounce (increased from FY14) in FY15
- Total capital expenditures are forecast to be approximately US$725m in FY15 (higher than FY14)
Summary of FY14 results
In FY14, Kinross was able to achieve record production of 2.71 million ounces, declining costs and strong cash flow generation despite lower gold prices. Cash on hand and overall liquidity overall remain very high. Most of the reported loss has come from non-cash impairments so it is appropriate to place more emphasis on the positive cash flow result. Additionally, the Russian operation performed strongly in FY14 against a backdrop of heightening geopolitical tensions, and represents Kinross’ most profitable region.
Kinross has elected preservation of the balance sheet over going ahead with the Tasiast gold mine expansion in West Africa. The company has noted that the current gold price environment does not provide sufficient grounds for confidence that it will be able to maintain balance sheet strength while financing the expansion. However, Kinross is facing material production declines later in the decade in the absence of new mines or successful exploration results. Kinross’ proven and probable reserves (equal to 13.8 years reserve life based on FY15 guided production) are well below Newcrest’s from a reserve life perspective (Newcrest’s is 33 years), which highlights the need for Kinross to undertake further development and exploration activity.
In our view, the company’s investment grade rating is supported by its strong cash or liquidity and its low net debt position which mitigates the heightened geopolitical and ongoing production risks. The company adopts a relatively conservative approach its balance sheet, which is positive for its credit. Having said this, the outlook for FY15 looks to be weaker than FY14. With a decrease in production and increased all in sustaining costs guided by the company, in comparison to FY14 we expect total free cash flows to be lower in FY15.