Kinross Stock Falls 6% on Q3 Results: Why Gold Miners Sank
Kinross Gold (TSX: K) stock fell 6.28% to C$30.16 on Thursday, a day after a third quarter in which revenue fell about 2% even though the gold price it received rose about 23%. Kinross was not alone: Agnico Eagle (TSX: AEM) grew revenue 17% and still fell 4.19%.
A flat index over a violent rotation
The S&P/TSX Composite closed at 36,249.03, down 0.05%, leaving it up 2.88% in October after a 2.85% fall in September. Measured through the iShares TSX sector funds, materials fell 2.98% while utilities led the market with a 1.11% gain, an odd winner on a day of hot US inflation data given how rate-sensitive the sector is. The S&P 500 fell 0.36% and the Nasdaq 1.42%. NYMEX WTI’s December contract settled at US$102.01 against US$102.76 on Wednesday, on the settlement-window price from Yahoo Finance trade data.
Hot US data hardened the case for higher rates
The Bureau of Economic Analysis report on personal income and outlays for September put the PCE price index up 0.5% on the month and 3.6% from a year earlier, with core PCE up 3.1%. Its advance estimate of third-quarter GDP put real growth at a 3.4% annual rate, against 2.2% in the second quarter.
The Federal Reserve held its target range at 3.75% to 4% on October 28, and the FOMC statement says “Inflation remains elevated.” Two members dissented, both preferring a quarter-point increase. Gold pays no income, so a higher path for rates lifts the cost of holding it. The producers took it harder than the metal: bullion futures slipped 0.34% to US$4,038 on a Yahoo Finance snapshot, against a 3.18% fall in the TSX gold sector, and miners carry operating leverage to the gold price.
Of the 60 materials names in the iShares XIC holdings book, weighted as of October 28, 56 finished lower, with Alamos Gold down 9.10%. Franco-Nevada fell 3.14% and Wheaton Precious Metals 2.77%, lighter than the two producers that reported: both take a share of production instead of operating mines, so their cost per ounce does not follow a mine plan. Barrick, which operates mines, fell 2.63%.
Cost and ounces separated the two miners, not the gold price
Both released results on Wednesday and held their calls Thursday morning, Kinross at 8:00 a.m. EDT and Agnico at 11:00 a.m. Both sold gold at essentially the same price: Kinross realized US$4,249 an ounce, Agnico US$4,264. Kinross sold 410,245 attributable gold-equivalent ounces against 504,111 a year earlier, and its third-quarter release puts revenue at US$1,774.7 million against US$1,802.1 million, a fall it attributes to “the decrease in production and ounces sold”.
Profit still rose on price rather than volume: that realized price was up from US$3,460 a year earlier, which lifted the attributable margin 19% to US$2,747 per gold-equivalent ounce sold and took adjusted earnings to US$0.50 a share from US$0.44.
Agnico’s third-quarter release shows adjusted net income of US$2.62 a share against US$2.16, and its guidance carries qualifiers: production “remains at the low end of the range of 3.3 to 3.5 million ounces” and all-in sustaining costs are expected “near the upper end” of US$1,400 to US$1,550.
Kinross guides to all-in sustaining costs of US$1,850 to US$1,900 an ounce, set on September 23 alongside a production guidance cut to about 1.84 to 1.86 million ounces a year. The quarter ran well above that range at US$1,947 an ounce, while the nine-month average of US$1,827 on a co-product basis is under it. Of the two that reported, the one selling 19% fewer ounces at a cost guided roughly US$400 an ounce higher fell half again as much. That is why we rank Canadian gold stocks on margin rather than on ounces.
Nine rising sectors against two falling ones
On our arithmetic over that holdings book, materials took out 49.0 basis points, a basis point being one hundredth of a percentage point, and information technology another 9.4, where Celestica fell 5.70% and cost 6.0 basis points, more than Kinross’s 4.7. The other nine sectors all rose, adding 53.9 between them, led by financials at 33.5, energy 6.9, utilities 3.8 and industrials 2.7.
The bid for banks, life insurers and pipelines came the day after the Bank of Canada’s increase to 2.5% was announced, its first since July 2023, and on the day it took effect. Bank of Montreal rose 1.23%, Sun Life 1.19%, Enbridge 1.49% and TC Energy 1.95%. The Government of Canada two-year yield was 3.41% on October 28, and one-month CORRA futures price a 54% chance of another 25 basis point move on December 9, with a hike the direction priced.
The Friday calendar
Cameco, Canadian National Railway and Imperial Oil report on Friday October 30, when Statistics Canada also publishes GDP for August.
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