Kinross is no longer golden

Problems at Kinross Gold lead to underperformance and can't be easily fixed.

By Jim J. Jubak Nov 12, 2009 2:03PM

Jim JubakA rising tide lifts all ships, true. But not all to the same extent.


The huge rally in gold to new historic highs day after day has largely left Kinross Gold (KGC) behind.


True, the stock is up 9% as of the close on November 11th from its recent low at $18. But in that same period, shares of Goldcorp (GG), a Jubak's Pick on November 5th, are up 22%. (For my Buy on Goldcorp see this post).


Unfortunately, I don't think the problems at Kinross Gold that have led to this underperformance can be easily fixed. So, I'm going to take the gain from the rising tide, sell Kinross at an overall loss with this column, and look for a ship that's better able to float with the tide.


What's the problem at Kinross Gold? Simply, lower production and higher costs.


Last quarter, the problems seemed limited to the company's Paracatu mine in Brazil. But with the November 2nd report Kinross said it is having problems at Paracatu and Fort Knox.


The problems at Paracatu, however, are costing the company the most and look hardest to fix. Throughput was running at just 70% of plant design levels in October, and gold recovery is stuck at 74% rather than the target of 80%.


Increasing throughput with the existing plant results in a coarser grind of the ore that, in turn, reduces gold recovery. Adding a third ball mill would increase throughput, but that will take until 2010 or 2011.


And while gold miners like Goldcorp are seeing rising production and falling costs, Kinross is experiencing exactly the opposite.


The company has lowered production guidance to 2.2 million ounces from an earlier, already lowered target of 2.3 million to 2.4 million ounces.


Costs at Paracatu climbed to $764 an ounce in the third quarter, and the company's overall cost rose to $464 an ounce. In contrast, total cash costs at Goldcorp this quarter were either $295 or $384 an ounce, depending on whether you use by-product or co-product accounting.


As of November 12, 2009, I'm selling Kinross Gold out of Jubak's Picks with a loss of 16% since I added it to the portfolio on April 4, 2008.


Jim Jubak plans to sell Kinross Gold out of his personal portfolio three days after this is posted. 

1Comment
Report
Please help us to maintain a healthy and vibrant community by reporting any illegal or inappropriate behavior. If you believe a message violates theCode of Conductplease use this form to notify the moderators. They will investigate your report and take appropriate action. If necessary, they report all illegal activity to the proper authorities.
Categories
100 character limit
Are you sure you want to delete this comment?

DATA PROVIDERS

Copyright © 2014 Microsoft. All rights reserved.

Fundamental company data and historical chart data provided by Morningstar Inc. Real-time index quotes and delayed quotes supplied by Morningstar Inc. Quotes delayed by up to 15 minutes, except where indicated otherwise. Fund summary, fund performance and dividend data provided by Morningstar Inc. Analyst recommendations provided by Zacks Investment Research. StockScouter data provided by Verus Analytics. IPO data provided by Hoover's Inc. Index membership data provided by Morningstar Inc.

STOCK SCOUTER

StockScouter rates stocks from 1 to 10, with 10 being the best, using a system of advanced mathematics to determine a stock's expected risk and return. Ratings are displayed on a bell curve, meaning there will be fewer ratings of 1 and 10 and far more of 4 through 7.

113
113 rated 1
279
279 rated 2
416
416 rated 3
647
647 rated 4
548
548 rated 5
513
513 rated 6
669
669 rated 7
516
516 rated 8
317
317 rated 9
113
113 rated 10
12345678910

Top Picks

SYMBOLNAMERATING
KOGKODIAK OIL & GAS Corp10
UPLULTRA PETROLEUM Corp10
TAT&T Inc9
COPCONOCOPHILLIPS9
DVNDEVON ENERGY CORPORATION9
More

VIDEO ON MSN MONEY

ABOUT

Top Stocks provides analysis about the most noteworthy stocks in the market each day, combining some of the best content from around the MSN Money site and the rest of the Web.

Contributors include professional investors and journalists affiliated with MSN Money.

Follow us on Twitter @topstocksmsn.