Kinross Gold Corporation (TSX: K) is engaged in gold mining and related activities, including exploration and acquisition of gold-bearing properties, the extraction and processing of gold-containing ore, and reclamation of gold mining properties. The Company's segments include Fort Knox, Round Mountain, Bald Mountain, Paracatu, Kupol, Tasiast and Chirano. Its projects include Tasiast 24k, Chulbatkan-Udinsk, Alaska projects and La Coipa Restart and Lobo-Marte.

Key Investment Rationale

• Acquisition of Great Bear Resources: On December 08, 2021, Kinross Gold Corporation announced that it has entered into a definitive agreement with Great Bear Resources Ltd. (TSX-V:GBR) to acquire all of the issued and outstanding shares of Great Bear through a plan of arrangement. Great Bear’s flagship Dixie project in Northern Ontario has significant potential to become a top tier, large-scale operation and project is one of the most exciting recent gold discoveries globally and extensive drilling results have shown the characteristics of a top tier deposit.
• Strong Underlying Commodity prices: The company is engaged in exploring gold, and prices of the underlying commodity is firm on the commodity exchange. Heightened inflationary pressure will further help gold prices to move up in upcoming quarters. Also, resurgence of COVID-19 cases could further increase demand for gold as safe haven asset class. Stronger underlying commodity prices will further bolster company’s financial heath in the upcoming quarter.
• Production increase on cards: The company is well positioned to meet its revised production guidance foe 2021 of 2.1 million Au eq. oz. (+/- 5%). Also the company continues to expect production to increase in 2022 and 2023 to 2.7 million and 2.9 million Au eq. oz. (+/- 5%), respectively. Higher production levels amid elevated underlying commodity prices will further strengthen the balance sheet of the company.
• Strong Liquidity & Financial Flexibility: Kinross’s liquidity position is strong with available liquidity of ~USD 2.1 billion including USD 586 million of cash and cash equivalents as of September 30, 2021. Also, in the third quarter the company generated USD 39 million of free cash flow and quite manageable Debt position with USD 39 million of free cash flow. Also the company is well-positioned to further strengthen their balance sheet next year.

Source: Company presentation

• Continues to enhance shareholder returns: Kinross continues to enhance shareholder returns through its share buyback and quarterly dividend programs. As onJuly 28, 2021, the company got approval from the Toronto Stock Exchange to establish a normal course issuer bid program to purchase up to 63,096,676 of its common shares (~5% of the Company’s issued and outstanding common shares as at July 27, 2021), during the period starting from August 3, 2021 and ending on August 2, 2022. Also, during the quarter, as part of the company’s continuing quarterly dividend program, the Company’s Board of Directors declared a dividend of USD 0.03 per common share payable on December 15, 2021, to shareholders of record as of December 1, 2021.
• An Income Play: At the last closing price of CAD 7.45 (as on December 08, 2021), the company shares were offering a dividend yield of 2.05%, which is decent given the lower interest rate environment. Also, the company’s dividend yield is higher compared to the Canada’s 10-year Government Bond yield of ~1.51%.

Risk Associated

Kinross is exposed to variety of risks ranging from adverse movement in the underlying commodity prices (Gold), a strength in dollar index against the majors could also have a weigh on the gold prices, increase in interest rate and resurgence in the COVID-19 cases could hamper production, operation and supply chain of the company. 

Financial Highlights: Q3FY21

Source: Company filing

Topline performance highlights: The company’s reported revenue in Q3FY21 was USD 862.5 million, declined from USD 1,131.3 million in Q3FY20, primarily on account of decrease in gold equivalent ounces sold as a result of lower production, and lower average realized gold price.

Average realized gold price: During the quarter under consideration, the company’s average realized gold price was  USD 1,790 per ounce, a decline of 6%  compared with USD 1,908 per ounce for Q3FY20.

All-in sustaining cost: The company’s reported Al-in sustaining cost per Au eq. oz. was USD 1,225 for Q3FY21, compared with USD 958 per Au eq. oz. in Q3 2020,mainly because of decrease in ounces sold.

Free cash flow: For the Q3FY21 Free cash flow was USD 38.9 million in Q3FY21, compared with USD 332.0 million for Q3FY20, mainly due to lower net operating cash flow.

Cash Position:  As of September 30, 2021, the company had cash and cash equivalents of USD 586.1 million, compared with USD 675.6 million at June 30, 2021. The decrease on sequential period was mainly due to capital expenditures and the return of capital in the form of dividends and share buybacks, partially offset by operating cash flows. 

Top-10 Shareholders:

Top-10 shareholders together holds ~28.26%, with BlackRock Investment Management (UK) Ltd. and Van Eck Associates Corporation are the major shareholders with an outstanding position of 6.81% and 6.5%, respectively. Institutional ownership in the company stood at 66.36%.

Source: REFINITIV, Analysis by Kalkine Group

Valuation Methodology (Illustrative): EV to Sales -based valuation

Note: Premium (discount) is based on our assessment of the company's growth drivers, economic moat, competitive advantage, stock's current and historical multiple against peer group average/median and investment risks.

Stock recommendation

In the third quarter of fiscal 2021, the company’s portfolio of mines performed well and on track to meet its revised production and cost guidance for the year. Also the company maintained its balance sheet strength while enhancing shareholder returns, as the company-initiated share buyback program in addition to declaring their quarterly dividend. Also, the company’s Tasiast mill has now re-started at costs below original estimates and is ramping back up. It is expected that the mill will achieve sustained throughput levels comparable to the H1FY21. The mill is also on track to reach 21,000 tonnes per day throughput by the end of Q1 2022.

Therefore, based on the above rationale, risk associated, and valuation done, we recommend a  “Buy” rating on “K” stock at the closing price of CAD 6.74 at 10:48 am as per Toronto time on 09 Dec 2021.

*Depending upon the risk tolerance, investors may consider unwinding their positions in a respective stock once the estimated target price is reached.

 Technical Analysis Summary:

1-year price chart (as on December 09, 2021, during the market hours). Source: REFINITIV, Analysis by Kalkine Group

*The reference data in this report has been partly sourced from REFINITIV.

*Recommendation is valid on December 09, 2021, price as well.

Disclaimer

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