Kinross, Agnico report lower Q2 earnings

Falling gold prices took a big bite of out of second-quarter earnings at Kinross Gold Corp. and Agnico Eagle Mines Ltd., but both miners generated solid cash flow and maintained strong balance sheets.

Those two factors are crucial right now. The gold price has taken a nosedive this month, falling below US$1,100 an ounce for the first time since early 2010. Investors want evidence that companies can maintain strong liquidity in case gold remains at these levels for a prolonged period, or goes even lower.

Toronto-based Kinross said it has slightly more than US$1 billion of cash and equivalents on its balance sheet. The company has relatively high costs compared to its rivals, with allin sustaining costs of US$1,011 an ounce in the second quarter. But chief executive Paul Rollinson said the firm is well positioned to withstand market volatility, with plenty of options on the table to reduce spending. Kinross announced on Wednesday afternoon that it is in the midst of a “comprehensive spending review” to reduce costs.

“Even if (gold) went lower from here, we’d have a real viable business in how we spend our money and how we manage our business,” he said in an interview.

Kinross reported an adjusted loss in the quarter of US$13.6 million, or one cent a share. That was in line with consensus analyst estimates, but down from a profit of US$32.9 million in the same quarter a year ago. In addition to weaker gold prices, Kinross had to temporarily suspend operations at its Maricunga mine in Chile because of poor weather.

Agnico had an adjusted profit of US$18.5 million, or nine cents a share, which was down from US$52.8 million in the year-ago quarter but also in line with analyst expectations. The company exited Q2 with US$158 million of cash, and paid down US$70 million of debt during the quarter.

Unlike some of its competitors, Toronto-based Agnico is in a position of strength with rising production, low costs and little debt. The company’s all-in sustaining costs were just US$864 an ounce in the second quarter, meaning it still has very healthy margins in the current gold market. Agnico also lowered its full-year cost guidance on Wednesday.

CEO Sean Boyd stressed that Agnico is not only trying to cut costs, but also increase spending as it identifies good growth opportunities. He described this is a competitive advantage for his company in the long term, as so many of its competitors are completely focused on the cost-cutting side.

“I know the theme (in the gold sector) will be ‘slash, slash, cut, cut.’ But at the end of the day, mining is a long-term business and you still have to invest in your people and your business,” he said in an interview.

Both Rollinson and Boyd also said they continue to look at acquisitions, though they are not in a rush to do anything. Kinross is under more pressure to get a deal done, as it faces a declining production profile over the next several years.

“We do look (at M&A), and have looked, but it’s all about value,” Rollinson said.