Kinross suspends Dividend

August 1, 2013 at 08:04

truthing

Kinross Gold Corp. is suspending its dividend and further delaying the Tasiast project in order to protect its balance sheet and adjust to a weaker gold price environment.

The announcements were made late Wednesday as the Toronto-based gold miner reported a massive second quarter loss of US$2.48-billion. The big loss was due to US$2.43-billion of writedowns, which overshadowed solid underlying results.

Chief executive Paul Rollinson said the  miner took a close look at its balance sheet in the second quarter, when the gold price was extremely volatile and briefly plunged below US$1,200 an ounce. While the company exited Q2 with a healthy cash position of US$1.16-billion, it felt it needed to take action to preserve its strong liquidity.

“The number one point here is we have a strong balance sheet and want to keep it that way. That’s the key,” he said in an interview, adding that the dividend suspension is proof that Kinross will not shrink from tough decisions.

Cutting the semi-annual dividend saves the company roughly US$182-million per year, or US$91-million per payment.

In the case of the troubled Tasiast expansion project in Mauritania, Kinross plans to delay a decision on whether to go ahead with it until 2015 at the earliest, even though a feasibility study will be completed early next year. Results from a prior study did not demonstrate that Tasiast would generate a strong return at current prices.

Kinross reduced the long-term gold price it uses for impairment testing to US$1,300 an ounce (from US$1,500), which was a key factor behind an enormous writedown of US$2.29-billion. The deferral of Tasiast also contributed to that impairment. Separately, Kinross took a US$720-million writedown because of its previously-announced decision to give up on the Fruta del Norte project in Ecuador.

After stripping out the noise, the second quarter results were solid. Adjusted earnings came in at US$119-million, or US10¢ a share, which was better than the consensus analyst estimate of US7¢. It is the company’s fourth strong quarter in a row from an operational standpoint.

Kinross, which has been focused on cost cutting since last year, said it has identified an additional US$180-million of savings for 2013, with more likely to come. It is also targeting “significant” spending reductions in 2014.

The actions are similar to those of other gold companies, which are all scrambling to cut costs and reduce capital spending after a stunning drop in the gold price. Gold has plunged 22% this year to US$1,313 an ounce, and is down more than 30% from its peak in 2011.

“We’re sticking to our [cost reduction] plan that we articulated last fall,” Mr. Rollinson said. “We just felt a need to intensify our activities given what’s happened with the gold price.”