Kinross posts deeper loss (May 01, 2002)

Lower gold production and higher cash costs led Kinross Gold (K-T) to more than double its net loss for the first three months of 2002.

The company suffered a loss of US$7.9 million (or 3 per basic and fully diluted share), compared with US$3.5 million (2 per share) in the first three months of 2001. Revenue slipped US$700,000 to US$69 million between the two periods, while cash flow from operations fell to US$19.9 million from US$32.7 million (the year-earlier cash-flow figure includes a US$21.1-million cash gain on the restructuring of gold forward sales).

First-quarter attributable gold production amounted to 225,302 oz. gold-equivalent, down from 239,352 oz. in 2000. Total cash costs per equivalent-ouce climbed US$6 to US$197.

The higher costs are attributed mostly to the Fort Knox mine in Alaska, where first-quarter production slipped to 93,160 from 100,347 oz. Cash costs soared by 38% to US$256 per equivalent-ounce. thanks to the mining of lower-than-reserve-grade ore. Mining of the lower-grade material will wrap up in the second quarter. Contributing to costs was the True North satellite mine, which was not running a year earlier. True North chipped in slightly better-than-expected grades.

Kinross sold its first-quarter production for US$295 per oz. — US$18 per oz. better than a year earlier, and a premium over the quarter’s average spot gold price of US$290 per oz. During the first quarter of 2001, gold averaged US$264 per oz.

In Timmins, the Hoyle Pond underground mine churned out 53,476 equivalent ounces, compared with 36,066 oz. in 2001. Cash costs slid to US$144 per equivalent-ounce from US$208. The improvements are due to a 28% increase in ore grade and a 7% increase in tonnes milled.

Kinross is completing due diligence and negotiating a joint-venture agreement with Placer Dome (PDG-T). The deal would see the two combine their operations in Timmins’ Porcupine camp. Placer would own 51% of the venture; Kinross, 49%. Key to the deal, which is slated for rubber-stamping in the third quarter, is Placer’s mill at Dome and Kinross’s at Bell Creek. Kinross says the deal should boost its Timmins gold production to almost 200,000 oz. in 2002. Cash cost are pegged at US$175 per oz.

Kinross wrapped up its extended offer for all of Kinam Gold’s $3.75 series B convertible preferred shares it did not already own on April 4. In the end, Kinross’s offer had 670,722 shares tendered to it, giving the company 87.8% of the issued and outstanding Kinam preferred shares. The company paid US$10.4 million.

Kinross already owns all the common shares of Kinam, which is an outgrowth of Kinross’s 1998 merger with Amax Gold.

In related news, Kinross has been named as a defendant in a class action complaint filed in late April in the U.S. District Court in Nevada. The complaint names as defendants Kinross Gold and Chairman and Chief Executive Officer Robert Buchan, subsidiaries Kinross Gold U.S.A. and Kinam Gold. It alleges breaches of fiduciary duties and numerous security exchange rules in order to produce a beneficial share purchase price for Kinross’s offer. The suit seeks damages in cash or shares. Kinross maintains the claim is without merit and plans to defend itself.

In the boardroom, Kinross has tapped Scott Caldwell, previously senior vice-president of operations, to replace Art Ditto as president and chief operating officer. Ditto has been named vice-chairman.

At the end of March, Kinross had US$90 million in cash and equivalents, and 358.1 million issued and outstanding shares.