The Q4 Earnings Season for the Gold Miners Index (GDX) has concluded, and overall, it was a disappointing season. Several miners missed output guidance, and cost guidance delivery fell short of investor expectations. As a result, average AISC margins shrank to ~$510/oz for the year, a decline of over 30% from FY2020 levels despite a slightly higher gold price reported on a two-year basis.

Kinross Gold (NYSE:KGC) was one of the companies that fell short of guidance in the million-ounce producer space. Its FY2022 production reached ~1.96 million attributable gold-equivalent ounces, marking the third consecutive year of missing its guidance. Costs were also higher than expected ($1,271/oz vs. guidance of $1,150/oz), resulting in a nearly 12% increase in all-in sustaining costs [AISC] year-over-year. However, the rising gold price, similar to the situation with Equinox Gold (EQX), is helping Kinross to deleverage and post more respectable margins in 2023.

In Q4, Kinross reported production of ~595,700 gold-equivalent ounces [GEOs], a significant increase from the previous year. However, the results were less impressive than they might have appeared due to various factors, such as delays in the mill ramp-up at La Coipa and supply chain headwinds affecting spare part availability.

Despite the challenges, Kinross reported its highest production year since 2008. The company's weighted average annual share count doubled since 2008, with only a ~9% increase in annual gold production. The trend is not expected to improve much with the divestments of Kupol, Udinsk, and Chirano, as the previous outlook of ~2.80 million GEOs in FY2023 has been cut down to ~2.0 million GEOs based on current guidance.

Kinross' costs and margins in 2022 were not much better. Q4 2022 AISC came in at $1,282/oz, and FY2022 AISC reached $1,271/oz, a nearly 12% increase from the previous year. The increase in operating costs was related to inflationary pressures across the portfolio and the divestment of the low-cost Kupol Mine.

The company's free cash flow in FY2022 was just $238.3 million, down from ~$1.04 billion in FY2020. However, the weaker financial results and significant dent to forward guidance following the divestments have created a company with a better overall jurisdictional profile. The weakness in the stock allowed the company to repurchase ~$300 million in shares at depressed prices, with room for further buybacks in FY2023 if the gold price remains strong.

With the recent strength in the gold price, Kinross is poised to benefit from improved margins in FY2023. Assuming an average realized gold price of $1,900/oz and FY2023 all-in sustaining costs of $1,300/oz, Kinross should see AISC margins improve to $600/oz, a 15% increase from the previous year. If the gold price averages $1,950/oz in FY2023, AISC margins would improve to $650/oz (+25% year-over-year).

Although Kinross has seen a 16% return in Q1 due to the rising gold price, there are more attractive opportunities in developers that have not participated in the recent rally, such as i-80 Gold (IAUX) and Marathon Gold (OTCQX:MGDPF). Both names trade at well below 0.60x P/NAV and offer more than 65% upside potential to their fair value.