Tidbit Saturday: Kinross
Jim Jubak (13 Nov 07):
"Mine takeover targets for gold": On Nov. 2, in a previous update of this column, I said I’d make a hold-or-sell decision on Kinross Gold (KGC, news, msgs) based on the numbers in its Nov. 7 earnings report. Well, the numbers are in, and they’re good enough that I’m going to keep this one in Jubak’s Picks for a while longer and raise my target price.
Here’s the issue for Kinross and all gold producers: Although the price of gold is up, so, too, are the costs of mining the metal. At Kinross, for example, the company projects cash costs of $355 to $365 an ounce for 2007. That’s up from 2006’s costs of $318 an ounce and up from prior company estimates of $330 to $340 an ounce for 2007. The problem at Kinross, as throughout the industry, is the rising price of fuel, tires, construction machinery and labor — just about everything needed to run a mine costs more.
Kinross has a company-specific problem, too: It is opening or expanding production at a number of mines. Right now, those projects are adding to costs but not producing any gold. On the plus side at Kinross, however, is a big increase in gold production scheduled for 2008 from those new and expanded mines.
According to Canaccord Adams, those new operations will push gold production at Kinross Gold to 1.92 million ounces in 2008, up from 1.6 million ounces in 2007. That’s a 20% increase in gold production and enough to keep me on board despite the increase in costs. As of Nov. 13, I’m increasing my target price to $22 a share by March 2008 from the prior $19 by December 2007. (Full disclosure: I own shares of Kinross Gold in my personal portfolio.)
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