Kinross results weighed down by Tasiast write-down

Kinross Gold (K-T, KGC-N) will have to take the bad with the good.

The company announced impressive gold equivalent sales of 724,000 oz. on production of 687,000 oz. at relatively low cash costs of US$686 per oz. All good numbers to base a gold mining business on, especially when it’s considered that they beat analysts like BMO’s David Haughton’s estimate by a good margin.

BMO’s forecast for production for the quarter was 598,000 oz. at cash costs of US$739 per oz.

But despite the sound operating numbers Kinross’s earnings were hit hard by yet another big time impairment charge — another write-down in the value of its Tasiast project in Mauritania.

This time the impairment to the asset on the balance sheet is to the tune of US$3.2 billion and that sent a shock wave through earnings, resulting in a reported net loss of $2.989-billion, or $2.62 per share for the three months ended Dec. 31. That compares to a net loss of $2.79-billion, or $2.45 per share in the year earlier period.

Kinross paid $7.1-billion for Red Back mining and its two key assets, Tasiast and the Chirano mine in Ghana, just two years ago. The company had already taken a roughly $2.5 billion charge on the assets last year and some quick math shows that it has now written down 80% of the price it paid for the acquisition.

Write-downs such as this are by their very nature non-cash charges and are in done in accordance with accounting principals which state that a company must do fair market value assessments of their assets on a regular basis. If that valuation results in a number less than what it has been carrying the asset on its books at, then a write down to the new valuation ensues.

Kinross says this write-down was connected to a reduction in the valuation multiple for Tasiast and industry-wide increases in capital and operating costs.

The company plans to have a carbon-in-leach mill finished at the site by the end of this quarter but it now envisions a 30,000 tonne per day mill rather than the 60,000 tonne per day mill that it was previously considering. In plain English it means that the future mine will be half the size of what the company thought it was buying.

The expensive acquisition cost former CEO Tye Burt his job in the middle of last year after much clamoring from investors who were rattled by the stocks moribund performance.

When the quarterly results are adjusted to exclude non-cash charges like the write down, net earnings ring in at $276.5-million, or 24 cents per share.

Revenue for the quarter came in at $1.186-billion, compared with $919.8-million year over year.

Kinross also said it is cutting capital expenditures for 2013 to $1.6 billion for the year —down $325 million from last year.

The company expects gold production to be relatively flat this year as it issued guidance of 2.4 to 2.6 million at cash costs of $740 to $790 per oz. Last year’s total production came in at 2.6 million gold equivalent ounces, which was slightly higher than the 2.5 million gold equivalent ounces it produced in 2011.

Despite a lack of growth in production and the continued issues at Tasiast BMO still has Kinross rated as ‘Outperform’

“The shares provide reasonable value, but continued uncertainty may prevent a meaningful share price rally in the near term,” Haughton wrote in his research note. “The release of the Tasiast pre-feasibility study in late April 2013 may provide a meaningful catalyst.”

In Toronto on Feb. 14 Kinross shares were up 5% or 42¢ to $8.31 on roughly 12 million shares traded.