Kinross Gold Corporation (TSX: K) is a Canada-based leading gold producer and operates through mines and focuses its greenfield and brownfield exploration in the Americas, West Africa, and Russia. The company has historically done acquisitions and has expanded to new regions along with production growth.

Key Investment Rationales:

• Encouraging FY22 Guidance: For the full-year 2022, the company expects its attributable gold production at around 2.65 million oz, which is ~28% higher than the FY21 production of 2.07 million oz. Attributable production cost of sales is expected at USD 830/ Au eq.oz. The management expects its capital expenditure at around USD 1,050 million.

Source: Company Reports

• Growth in Mineral reserve: During FY21, the company increased its proven and probable mineral reserve to ~32.6 million Au oz., adding 2.7 million Au oz. net of depletion, mainly due to additions of 3.0 million Au oz. at Udinsk location coupled with a net increase of 792 Au koz. at Round Mountain, primarily from Phase S conversion. Additionally, after the completion of the feasibility study, the company’s LoboMarte project also added ~300,000 oz of mineral reserves. This is impressive, as a higher reserve base indicates better mining prospects.

Source: Company Presentation 

• Updates on drilling activities: During FY21, the company completed 230,000 m of drilling activities and discovered high-grade veins with attractive widths at Arykvaam along with promising targets within the Kupol Synergy Zone. Notably, the company wants to continue the momentum for FY22, and hence it has increased its exploration budget to USD 130 million, up ~USD 10 million from last year’s forecast.
  

• Impressive outlook from specific projects: From the Tasiast 24k project, the company expects its throughput to reach 21,000 tonnes/day on a sustained basis during Q1FY22 and 24,000 tonnes/ day by mid of 2023. Moreover, the company reported the commissioning of the plant in its La Coipa Restart project through the addition of Puren and Phase 7 optimization. This is expected to increase its life of mine production by 45% to ~1 million Au eq. oz and would extend its mine-life to early 2026.

• Surge in dividend payment: In FY21, the company reported a surge in the dividend payment of USD 151.1 million, which is significantly higher than USD 75.5 million in FY20. This is impressive as most of the companies are lowering or discarding their dividend payment in order to retain liquidity.
• Bullish outlook of Gold: International Gold price has remained elevated since October 2021 due to rising bond yield. Moreover, being a defensive asset class, gold is gaining traction due to the overvalued equity market. Recently, we have seen a growing interest in the Gold ETF segment, which implies that investors are pouring their investments in the same. Continuation of the above trend would support the company’s sales volume in the coming days.
  

Risks associated with the investment:

The company’s performance is correlated to the international gold prices, and price volatility in the commodity prices are likely to dampen the company’s income and cash flows on account of lower realization. Moreover, due to Geo-political tension between Russia and Ukraine, Gold prices have been trading highest since April 2021. Hence, with any possible recovery in the macro scenario, the gold prices might correct from its current levels resulting in lower realization for the company.

FY21 Financial Highlights:

Income Statement Highlights (Source: Company Reports)

• Slide in top-line: Kinross announced its full-year results, wherein the company posted its revenue of USD 3,729.4 million, as compared to USD 4,213.4 million in FY20. The decline was primarily due to a slide in gold equivalent ounces sold (2,075,738 oz in FY21 v/s 2,375,548 oz in FY20) , partially offset by an increase in the average metal prices realized.

• Lower operating earnings: The quarter was marked by a higher cost of sales, an increase in other operating expense and higher exploration and business development costs. Additonally, general and administrative costs also stood higher at USD 126.6 million in FY21 v/s USD 117.9 million in FY20. Hence, operating earnings stood lower at USD 463.6 million in FY21 from USD 1,899.4 million in FY20.

• Decline in net earnings: The company reported its net earnings of USD 218.7 million, significantly lower than USD 1,358.7 million in The decrease was primarily attributable to lower operating earnings, partially offset by lower finance expense and a decline in net income tax expense.

Top-10 Shareholders:  Top ten shareholders of the company together hold approximately 28.32% stake, BlackRock Investment Management (UK) Ltd., Van Eck Associates Corporation are the major shareholders in the company with an outstanding position of 6.36% and 5.85%, respectively.

Source: REFINITIV, Analysis by Kalkine Group.

Valuation Methodology (Illustrative): EV/ Sales based

Analysis by Kalkine Group 

*% Premium/(Discount) is based on our assessment of the company’s NTM trading multiple after considering its key growth drivers, economic moat, stock's historical trading multiples versus peer average/median, and investment risks.

Stock Recommendation:

The company’s quick ratio and current ratio stood higher at 1.08x and 2.63x, respectively, in FY21, improved from 1.02x and 1.82x, respectively, in FY20. This indicates better working capital management and improved short term liquidity. We have valued the stock using the EV to Sales-based relative valuation method and have arrived at a double-digit upside (in percentage terms). For the said purposes, we have considered peers like Yamana Gold Inc, SSR Mining Inc etc. Considering the aforesaid facts, we recommend a ‘Buy’ rating on the stock of K at the closing price of CAD 7.01 on February 23, 2022. Markets are trading in a highly volatile zone currently due to certain macro-economic issues and geopolitical tensions prevailing. Therefore, it is prudent to follow a cautious approach while investing.

One-Year Technical Price Chart (as on February 23, 2022). Analysis by Kalkine Group

*Recommendation is valid on February 24, 2022, price as well. 

Technical Analysis Summary

Technical Indicators Defined: -

Support: A level where-in the stock prices tend to find support if they are falling, and downtrend may take a pause backed by demand or buying interest. 

Resistance: A level where-in the stock prices tend to find resistance when they are rising, and uptrend may take a pause due to profit booking or selling interest. 

Stop-loss: It is a level to protect further losses in case of unfavourable movement in the stock prices 

Note 1: The reference data in this report has been partly sourced from REFINITIV. 

Note 2: Investment decision should be made depending on the investors’ appetite on upside potential, risks, holding duration, and any previous holdings. Investors can consider exiting from the stock if the Target Price mentioned as per the Valuation has been achieved and subject to the factors discussed above.

Disclaimer

The advice given by Kalkine Canada Advisory Services Inc. and provided on this website is general information only and it does not take into account your investment objectives, financial situation and the particular needs of any particular person. You should therefore consider whether the advice is appropriate to your investment objectives, financial situation and needs before acting upon it. You should seek advice from a financial adviser, stockbroker or other professional (including taxation and legal advice) as necessary before acting on any advice. Not all investments are appropriate for all people. The website www.kalkine.ca is published by Kalkine Canada Advisory Services Inc. The link to our Terms & Conditions has been provided please go through them. On the date of publishing this report (mentioned on the website), employees and/or associates of Kalkine do not hold positions in any of the stocks covered on the website. These stocks can change any time and readers of the reports should not consider these stocks as advice or recommendations later.