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Gold Q1 Results: Kinross Earnings Miss Estimates

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Also, Barrick hikes its dividend -- do gold majors have the ability to pay out more?

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MINYANVILLE ORIGINAL Continuing Q1 earnings season for the gold majors earlier this week, Kinross Gold (KGC) reported results that missed analyst expectations, but the company says production at its Tasiast mine is expected to improve in the second half of the year.

Kinross announced reported net earnings of $105.7 million, or $0.09 per share, down from $250.1 million, or $0.22 per share in the first quarter of 2011. Earnings were affected by a non-cash item, a remeasurement of deferred tax liabilities and an increase in the Ghanaian corporate income tax rate. Adjusted net earnings came in at $203.1 million or $0.18 per share, up 16% over Q1 2011.

According to Thomson Reuters, on average, analysts expected earnings of $0.20 per share.

Kinross' production also declined 6% over Q1 2011, but the company says it expects to be within its 2012 forecast guidance for production of 2.6 to 2.8 million attributable gold equivalent ounces. While it reported lower than expected production at its Tasiast mine in Mauritania in the first quarter, Kinross says that mining activity has accelerated at Tasiast, and "infrastructure development for an expanded operation" is proceeding on schedule.

The Tasiast gold mine, which was acquired by Kinross in 2010 as part of the Red Back Mining acquisition, was the subject of a $2.9 billion write-down in the fourth quarter. The company's board has also approved full construction funding on the Dvoinoye project, which is on schedule to deliver first ore to the Kupol mill in the second half of 2013.

But Zacks Equity Research reports that although Kinross missed its consensus estimate of $0.21 per share, the company, like other gold producers, benefits from rising gold prices. "We expect Kinross' exploration projects and acquisitions to boost its top line going forward," says Zacks.

In comparison, last week, Barrick Gold (ABX) reported Q1 net earnings of $1.03 billion or $1.03 per share, up 3% from $1 billion or $1.00 per share in the first quarter of 2011.

Barrick is maintaining its full year gold production guidance of 7.3 to 7.8 million ounces at total cash costs of $520 to $560 per ounce, but says gold production in the second quarter is expected to be lower than the first quarter, due to mine sequencing at Lagunas Norte and Cortez and planned maintenance of the roaster at Goldstrike. Production is expected to increase during the second half of 2012.

Based on its "strong earnings and operating cash flows" as well as its positive outlook on the gold price, Barrick also announced that it was hiking its dividend by 33% to $0.20 per share, up from $0.15.

Barrick's dividend news comes on the heels of a dividend increase from another gold major, Newmont Mining (NEM) in late April, announcing a quarterly dividend of $0.35 per share, up 75% on the company's Q2 2011 dividend. Newmont uses a gold price-linked dividend policy, with each quarterly dividend based on the company's average realized gold price for the preceding quarter.

When miners' Q4 results were released in February, Dahlman Rose analyst Adam Graf told Minyanville that as a result of embarking on major multiyear campaigns, Kinross and Goldcorp have limited ability to double or triple their dividends in the near term. However, Barrick, he said at the time, could have the capacity to double its dividend this year.

"[Barrick's] dividend right now is a drop in the bucket. They certainly have the capability to pay a lot more," said Dennis da Silva, a resource fund manager at Middlefield Capital, via the Financial Post.

Kirkland Lake Gold (KGI.L) chief executive officer Brian Hinchcliffe recently told Bloomberg that gold miners should pay higher dividends to compete with exchange-traded funds. "ETFs are a major competing alternative for investment. I'm talking about a 5% to an 8% dividend policy, that is the best defense against the ETF," he says.

The dividend yields of both Barrick and Kinross currently sit around 2%. This compares with 3% for Newmont Mining, 1.6% for Yamana Gold (AUY) and Goldcorp (GG), and 1.5% for Eldorado Gold (EGO). The S&P 500's average dividend yield is 2.4%, according to Bloomberg data.
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