February 17, 2011 / 2:09 AM / in 7 years

WRAPUP 1-Kinross, Agnico profits held down by higher costs

* Kinross, Agnico profits fall short of expectations

* Kinross, Agnico sharply increase size of gold reserves

* Kinross shares down nearly 1 pct, Agnico down 3 pct (Wraps Kinross, Agnico results; Figures in U.S. dollars)

By Euan Rocha

TORONTO, Feb 16 (Reuters) - Gold miners Kinross Gold (K.TO) and Agnico Eagle (AEM.TO) reported large increases in quarterly gold production on Wednesday, but profits at both companies lagged expectations due to higher production costs, sending their shares lower.

The Canadian gold miners said the higher costs were due to specific operational issues at certain mines, along with higher labour and energy costs.

“Increasing production costs are definitely a trend within the gold industry at this time,” said Morningstar analyst Joung Park. “While a part of this is due to the mining of lower grade material, increasing labor, energy and material costs are the more important factors.”

Recent data indicated that average gold mining cash costs across the industry rose nearly 16 percent to $585 per ounce in the third quarter of 2010, Park said.

Although profits disappointed, both companies reported stellar revenue growth on the back of increased production and a spike in the average realized gold price during the quarter.

The Toronto-based miners also significantly boosted their proven and probable gold reserves. The increase in reserves was largely driven by exploration successes and acquisition-related gains.

Kinross said its reserves as of year-end 2010 were up 23 percent to 62.4 million ounces, while those of its rival Agnico rose 16 percent to 21.3 million ounces.

Shares of Kinross were down nearly 1 percent at $16.85 in post-market trade in the United States following its earnings report, while shares of Agnico fell 3 percent to $74.14.

The world’s top gold miner, Barrick Gold (ABX.N), was expected to report its fourth-quarter results early on Thursday.


Kinross said its fourth-quarter net income fell to $210.3 million, or 18 cents a share, from $235.6 million, or 34 cents a share, a year earlier.

Earnings excluding one-time items were $144.7 million, or 13 cents a share, slightly shy of Wall Street’s average forecast of 15 cents a share, according to Thomson Reuters I/B/E/S.

Kinross expects 2011 gold output to rise 10 percent to between 2.5 million and 2.6 million ounces, largely due to its $7.1 billion acquisition of Africa-focused Red Back Mining that closed late last year. That deal transformed Kinross from an intermediate gold player into one of the world’s top five gold miners.

The company expects the cost of sales on a gold equivalent basis to be in the range of $565 to $610 an ounce in 2011.

The company said the high production costs in 2011 are due to a decline in grades at its existing mines, along with higher energy and labor costs. However, it expects cost pressures to ease in 2012, as production volumes increase and new facilities begin operations.

“We are pretty excited about 2012, as 2011 is a bit of a transition year for us,” said Chief Executive Tye Burt in an interview with Reuters. “A number of things will happen in 2012 that will improve our cost profile.”


Agnico said its fourth-quarter net income rose to $88 million, or 51 cents a share, up from a year-earlier profit of $47.9 million, or 30 cents a diluted share.

Excluding one-time items, earnings in the quarter were 55 cents a share. On that basis, analysts on average had forecast earnings of 62 cents a share, according to Thomson Reuters I/B/E/S.

Agnico said its average realized gold price rose more than 20 percent to $1,387 an ounce. Gold output climbed more than 50 percent to 256,469 ounces, driven largely by the start-up of the Meadowbank mine in Nunavut in northern Canada.

Quarterly revenue from mining operations rose about 95 percent to $439 million. Total cash costs per ounce rose close to 60 percent to $462 per ounce.

Agnico’s Chief Executive Sean Boyd told Reuters that he expects average production costs to come down in 2011 as the company continues to ramp-up production at Meadowbank.

“Costs are a function of throughput and ounce production,” said Boyd. “Ounce production will increase this year by 18 percent, so on that basis we should see an improved cost profile in 2011.” ($1= $0.99 Canadian) (Reporting by Euan Rocha; Editing by Gary Hill)

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