February 16, 2012 / 5:19 AM / 6 years ago

UPDATE 2-Kinross profit disappoints but dividend hike soothes

* Q4 adjusted EPS $0.17 vs Wall St view of $0.21

* Kinross announces 33 pct increase in dividend payout

* To focus on Tasiast, delay Lobo-Marte and FDN projects

By Euan Rocha

TORONTO, Feb 15 (Reuters) - Canada's Kinross Gold reported an operating profit that fell short of expectations on Wednesday, as weaker than expected sales and higher than expected costs weighed in the quarter and offset gains from a surge in the price of bullion.

The Toronto-based gold miner, however, announced a 33 percent increase in its semi-annual dividend payout and outlined a clear development timetable for its Tasiast mine in Mauritania and its Dvoinoye project in Russia, stemming declines in its share price after the closing bell on Wednesday.

"We have defined Tasiast as our number one top development priority and prioritized it ahead of other capital spending," Kinross Chief Executive Tye Burt said in an interview. "Tasiast is a world class asset with 20 million ounces of gold and it is our top priority."

In an attempt to avoid massive capital cost overruns, Burt said the company has decided to delay the development of its Lobo-Marte gold project in Chile and its Fruta del Norte (FDN) project in Ecuador.

"In the case of FDN we will be renegotiating and sitting back down at the table, to move forward with what I hope will be an improved deal on the taxes and royalty structure," said Burt.

In December, Kinross, which has been viewed by some analysts as a takeover target, said it had reached a tentative deal with the government of Ecuador that would allow it to develop the FDN project in the Andean nation.

The current deal though would result in Kinross paying out roughly half of its income, after production costs, in taxes and royalties.

Burt said the company has also decided to delay development work at Lobo-Marte, which will result in first production being pushed out to beyond 2015. The processing of ore from Dvoinoye remains on target to commence in the second half of 2013.

Kinross' new semi-annual dividend payout will be 8 cents a share, payable to shareholders on March 31.

TASIAST WEIGHS

Kinross continues to assess the economics of a 'mill-only' processing option for its Tasiast expansion, but is also studying alternative scenarios, including a 'heap leach'. Kinross plans to take a preliminary decision on the processing option by the end of June, and it is aiming to begin construction on the site expansion in mid-2013.

However, as signaled in January, Kinross booked a massive $2.94 billion non-cash goodwill impairment charge in the quarter related to its acquisition of the Tasiast and Chirano mines. The gold miner acquired the West African gold mines through its $7.1 billion takeover of Red Back Mining in 2010.

Kinross said the charge was a result of changes in market conditions, including industry-wide increases in capital and operating costs, and a decline in industry-wide valuations as of the end of 2011.

Excluding the charge and other one-time items, the company reported a profit of $196.6 million, or 17 cents a share in the quarter. Analysts, on average, had forecast earnings of 21 cents a share, according to Thomson Reuters I/B/E/S.

On a net basis, the company reported a fourth-quarter loss of $2.78 billion, or $2.45 a share. That compared with a year-ago loss of $72.9 million, or 6 cents a share.

Quarterly revenue rose 3 percent to $949.3 million, largely due to a higher average realized gold price.

The company said production in the quarter, however, fell 5 percent to 643,288 gold equivalent ounces, largely due to an expected reduction in grades at several mines.

Its gold production cost rose 16 percent in the period to $636 an ounce, mainly due to increases in labour costs, diesel and power costs, and royalties.

Kinross said its total proven and probable mineral reserves as of year-end 2011 were 62.6 million ounces of gold, up 0.2 million ounces from a year ago.

Kinross expects to produce about 2.6 million to 2.8 million gold equivalent ounces in 2012, at production costs of $670 to $715 an ounce.

Kinross shares, which initially slipped in trade after the closing bell, pared losses and were roughly flat at $10.35 a share late on Wednesday in the United States.

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