DELIVERING DISCIPLINED GROWTH

Third largest primary Gold Producer in North America

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aitakahashi

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comments from a bema shareholder

posted on Feb 21, 2009 06:32AM

a former bema shareholder comments on the kinross bema-related write down, and the company's recent performance.

Kinross Takes Its Medicine and Keeps Mining Gold

By Christopher Barker
February 20, 2009

You never forget your first, and Bema Gold was my first gold mining stock.

After years of speculation, Kinross Gold (NYSE: KGC) ingested Bema for $3.1 billion back in early 2007. I remember feeling short-changed at the time, but now, two years later, we have a stark reminder of how poorly the gold mining equities and mining assets have performed relative to the gold price. Gold was priced below $650 per ounce when that deal was announced, and Kinross was forced to write down nearly $1 billion in goodwill on that acquisition despite more than a $200 bump in gold prices by the end of 2008. Kinross shares, likewise, have gained barely more than a few bucks over the past two years, narrating a story of as-yet-unrealized potential that I believe echoes throughout the sector.

Since Kinross Gold had forewarned of this massive write-down, the market took the latest earnings release in stride, encouraging Fools to bury the hatchet and focus on the company's operations and outlook. With three projects achieving production in 2008, Kinross delivered a 43% increase in gold production in the fourth quarter for a 72% bump in revenue. After reaching 1.8 million ounces in 2008, Kinross is targeting a further 33% increase to 2.4 million ounces of gold production in 2009.

Further corroborating the trend of declining costs -- predicted by executives of both Barrick Gold (NYSE: ABX) and Yamana Gold (NYSE: AUY) -- Kinross saw an 11% decline in production costs for the quarter to just $375 per ounce. This is right in the range of rival Goldcorp (NYSE: GG)'s 2009 projected costs of about $365 per ounce and signals some massive profits ahead if gold continues to climb.

Kinross sees the Lobo-Marte project in northern Chile as its future star. Kinross purchased the project for an incredible $42 per ounce of gold in the ground from two miners feeling debt-related stress from the financial crisis: Teck Cominco (NYSE: TCK) and Anglo American (Nasdaq: AAUK).