Kinross Gold Corporation

Kinross Gold Corporation (TSX: K) is a Canada-based senior gold producer, producing roughly 2.4 million gold equivalent ounces in 2020. The company had 30 million ounces of proven and probable gold reserves and 59 million ounces of silver reserves at the end of 2020. It operates mines and focuses its greenfield and brownfield exploration in the Americas, West Africa, and Russia

Key highlights

• Balance Sheet Strength: Despite Covid pandemic, Company has maintained cash and cash equivalents of USD586.1 million as on Sept 2021, compared with USD675.6 million on June 30, 2021.

• Increased Capital Expenditures for Development: Capital expenditures increased to USD231.0 million in Q3 2021 compared to USD212.1 million in Q3 2020, primarily due to increased expenditures for development activities at La Coipa, the feasibility study at Lobo-Marte, the pre-feasibility study at Udinsk, and an increase in capital stripping at Tasiast. These increases were partially offset by reduced capital stripping at Bald Mountain and Round Mountain.

• Free Cash Flows: Despite Covid Impact company has Free cash flow to USD38.9 million in Q3 2021, compared with USD332.0 million for Q3 2020, mainly due to lower net operating cash flow.

• Development Projects: The Tasiast 24k project is advancing well and is on schedule to reach throughput of 21,000 tonnes per day by the end of Q1 2022, and then 24,000 tonnes per day by mid-2023. The first phase of the project is 96% complete. La Coipa Restart project continues to advance well and on schedule to commence production in mid-2022, with pre-stripping progressing as planned.
  

Financial overview of Q3 2021 (In millions of USD, except ounces, per share amounts, gold price and per ounce amounts)

Source: Company Filings

• Revenue was USD862.5 million in Q3 2021, a decrease compared with USD1,131.3 million in Q3 2020, mainly due to a decrease in gold equivalent ounces sold primarily because of lower production, and lower average realized gold price.
• Kinross attributable margin per Au eq. oz. was USD920 for Q3 2021, which decreased compared with the Q3 2020 margin of USD1,171 per Au eq. oz.
• Adjusted operating cash flow was USD190.5 million in Q3 2021, which has decreased compared to USD549.6 million in Q3 2020, mainly due to the decrease in revenue. The temporary suspension of milling operations at Tasiast was a main contributor to the year-over-year decrease in operating earnings. However, Tasiast mill has re-started, and Company is on track for strong production growth over next two years.
• Capital expenditures has increased to USD231.0 million in Q3 2021 compared to USD212.1 million in Q3 2020, primarily due to increase in expenditures for development activities at La Coipa, the feasibility study at Lobo-Mare, the pre-feasibility study at Udinsk, and an increase in capital stripping at Tasiast.
  

Risks associated with investment

Since, the company competes in a highly competitive market, it must adapt to and compete with rapid changes in global metal prices, demand and supply, industry scenario, and client preferences to stay afloat. This could result in significant input costs, which could adversely impact its profit margins.

Valuation Methodology (Illustrative) EV to Sales Based

Stock recommendation

The company had a good third quarter, contributing to solid year-to-date results driven by constant currency organic growth in revenue. Therefore, based on the above rationale and valuation, we recommend a "Buy" rating at the closing price of CAD 7.32 on December 30, 2021.

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

Technical Summary Analysis

One-Year Price Chart (as on December 30, 2021). Source: REFINITIV, Analysis by Kalkine Group

Fortuna Silver Mines Inc              

Fortuna Silver Mines Inc (TSX: FVI) is a Canada-based precious metals producer. Its business operations comprised of mining and related activities in Latin America, including exploration, extraction, and processing of silver- lead, zinc, and silver-gold and the sale of these products. 

Key Highlights

• Healthy production numbers: The corporation recently released its third-quarter production statistics from its four active mines in the Americas and West Africa, revealing that it produced 65,425 ounces of gold, up 411% from the previous corresponding period. Although, it witnessed a slight decline in silver at 1,711,881 ounces but the momentum was higher for Zinc and lead.

Source: Company Filing

• Robust financial performance: Revenue increased by USD 79.2 to USD 162.6 million in Q3 2021. An increase in sales was primarily due to gold sales from the Yaramoko mine of USD 49.0 million and Lindero mine of USD 41.8 million, while adjusted EBITDA increased by 78% to USD 75.3 million and adjusted net income increased to USD 22.5 million, all on a year-over-year basis. The improved outcomes were fueled by higher output.

Source: Company Filing

• Updated production guidance for FY 2021: The company's management is optimistic about commodity prices and has projected a good production profile. The firm forecasts consolidated silver and gold production of 6.8 to 7.6 million ounces and 194 to 223 thousand ounces, or 283 to 323 thousand gold equivalent ounces, in FY 2021, representing a 90 percent to 116% growth year over year. The business merger with Roxgold Inc. is projected to result in increased production figures.

Source: Company Filing

• Elevated free cash flow: Due to strong operational performance, the company produced considerable cash flow from operating operations during the report period, which increased by USD 7 million to USD 39.4 million. While the free cash flow also increased to USD 33.8 million against USD 30.1 million in Q3 2020. The gain was mostly attributable to higher EBITDA, which was fueled by a higher output and Lindero and Yaramoko contributions.
  

Risks associated with investment

• The performance of the company is directly correlated with the gold and other metal prices. Thus, volatility in the commodity price would dampen the company’s income and would take a toll on the overall performance.
  

Financial overview of Q3 2021 (In 000 of USD)

Source: Company Filing

• In Q3 2021, the company reported record sales of USD 162.6 million, increased 95% from the USD 83.4 million reported in the previous corresponding period. An increase in the revenue was mainly due to higher production.
• Cost of sales stood at USD 115.2 million against USD 41.3 million in the previous corresponding period. The company’s cost of sales stood at 70.8% as a % to sales in Q3 2021, compared to 49.5% as a % to sales in Q3 2020.
• Mines operating income increased to USD 47.3 million against USD 42.0 million in the previous corresponding period.
• Operating income in Q3 2021 stood at USD 21.7 million, decreased by USD 6.7 million compared to Q3 2020, primarily due to higher expenses, mainly due to acquisition of Roxgold Inc.
• Net profit in the reported period stood much lower at USD 0.2 million compared to USD 13.0 million in pcp. The dented net income was primarily due to lower operating income and USD 10.5 million in transaction costs related to the acquisition of Roxgold Inc.
  

Valuation Methodology (Illustrative): EV to Sales based

Stock recommendation

The company's excellent adjusted EBITDA of USD 75.3 million in the third quarter, with margins of 46%, and free cash flow from operations of USD 33.8 million testifies to the business's strength. FVI's record financial results reflect the Lindero mine in Argentina's continued increasing production trend and the Yaramoko mine in Burkina Faso's first quarterly contribution. We believe, as the group ramp up its building activity at the Seguela project in Côte d'Ivoire, would help them in clocking more healthy cash flow, which is a key positive. Therefore, based on the above rationales and valuation, we recommend a "Buy" rating on the stock at the closing price of CAD 4.98 as of December 30, 2021.

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

Technical Summary Analysis

One-Year Technical Price Chart (as on December 30, 2021). Source: REFINITIV, Analysis by Kalkine Group

Tucows Inc.

Tucows Inc. (TSX: TC) operates in technology market primarily in the United States and to a lesser extent in Canada and Germany. Its services touch upon two segments in the technology sector; Domain Services and Network Access Services. 

Key updates:

• Strong momentum from the Fiber Internet Services: The company reported strong performance from its Fiber Internet Services, and posted its revenue of USD 17.868 million, as compared to USD 13.379 million in pcp. The surge was driven by the company’s expansion through its Ting Fiber internet footprint across selected Ting towns within the U.S. Continuation of the above trend is likely to support the company’s overall performance.

• Improved cash cycle days: In Q3FY21, the company posted an improved cash conversion day of 15.7 days, significantly lower than the industry median of 30.2 days. The above indicates that the group is efficient to convert its investments in inventory and other resources into cash flows.

• Acquired Simply Bits: During the third quarter of FY21, the company reported acquisition of Simply Bits, which is a leading fixed wireless network service company located in Tucson, Arizona. The above acquisition would expand TC’s footprint across the Southern Arizona market, while it will be able to leverage Simply Bits' wireless expertise within the small fiber-to-the-home segment.
  

Risks: Due to the increase in competition within the Internet services, the company might witness a loss of market share which might subsequently lead to price competition. 

Q3FY21 Financial Highlights:

• TC announces its quarterly result, wherein the company posted its net revenue of USD 75.893 million, as compared to USD 74.311 million in the previous corresponding period (pcp). The increase was the result of growth in revenue from the Fiber Internet Services and both Mobile Platform Services and Other Professional Services under the new MSE model, partially offset by the absence of Ting Mobile MVNO revenue during the period.
• Gross profit stood at USD 18.024 million, declined from USD 19.941 million in pcp. The slide was primarily due to increase in cost of revenues.
• Total expenses stood lower at USD 21.248 million, from USD 18.629 million in pcp, due higher Sales and marketing expense and increase in technical operations and development cost. Additionally, surge in General & administrative costs also supported the increase.
• Net income for the period was recorded at USD 1.375 million, increase from USD 0.716 million in pcp.

Q3FY21 Income Statement Highlights (Source: Company Report)

Valuation Methodology (Illustrative): EV to Sales Based

Stock Recommendation:

The stock of TC appreciated ~8% and ~14% in the last nine months and one year, respectively, and current closed above its 50-days and 100-days simple moving averages (SMA), indicating a bullish pattern. Hence, considering the aforesaid facts, we give a ‘Buy’ recommendation on the stock of TC at the last closing price of CAD 107.20 on December 30, 2021.

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

Technical Summary Analysis

One-Year Technical Price Chart (as on December 30, 2021). Analysis by Kalkine Group 

Torex Gold Resources Inc

Torex Gold Resources Inc (TSX: TXG) is an intermediate producer of gold and other precious metals, engaged in the exploration, development, and exploration of its wholly owned Morelos Gold Property. The property consists of 29,000 hectares in the Guerrero Gold Belt. Within this property, the company has two assets: the El Limon-Guajes Mine and the Media Luna Project, which is at an advanced stage of exploration.

Key highlights

• Net Cash and Minor Debt & Lease Obligations: Despite Covid pandemic, Company has able to maintain net cash of USD222 million as on Sept 2021, and minute debt & lease obligations of less than USD 4 million which was USD 155 million in Q3 2020. Hence, substantially reducing the debt and holding net cash to mitigate with future opportunities and enhancing business investments.

Source: Company PPT

• Increase in Revenue: The revenue of the company is USD216.7 million in Q3 2021 vs USD256.5 million in Q3 2020. However, for the nine months ended on Sept 2021, the revenue of the company is USD653.8 million vs USD537.6 million from previous comparable period.

• Earnings from Mine Operations: Company’s earnings from mine for the nine months ended Sept 2021 increases by 74.69% to USD259.6 million vs USD148.6 million in Q3 2020, due to increase in revenue, decrease in depreciation and care and maintenance expenses.
  

• Torex Strategy and Focus: The Company has strategy to move forward, which includes a fresh focus on exploration and with the results from the 2021 drill program at the ELG Underground. Infill drilling conducted under the first phase of the 2021 program reinforces its positive outlook on the ability to extend the mine life of ELG Underground beyond current reserves and complement future production from Media Luna, which remains on track to begin in Q1 2024.

Risks associated with investment           

Since, the company competes in a highly competitive market, it must adapt to and compete with rapid changes in global metal prices, demand and supply, industry scenario, and client preferences to stay afloat. This could result in significant input costs, which could adversely impact its profit margins. 

Financial overview of Q3 2021 (In millions of USD, except per share amounts)

Source: Company Filing

• In Q3 2021, the revenue of the company is down by 15.51% to USD216.7 million as compared to previous comparable period.
• The company reported net income of USD36.5 million as compared to USD 60.3 million in the previous corresponding quarter. Also, the foreign exchange loss in this quarter is USD1.7 million as compared to loss of USD 6.2million in previous year comparable quarter, due to severe change in currency fluctuation because of global pandemic situation.
  

Valuation Methodology (Illustrative) EV to Sales Based

Stock recommendation

The company has maintained cash of USD 222 million and keeping itself debt free in this quarter. Further, company has presented better nine months financials for the period ended Sept 2021, also company is expected its Q4 to be highest quarter of the year given higher Total cash cost and higher capitalized waste. Moreover, the Company is moving forward to climate change strategy under development and entered agreement to build new 8.5 MW solar plant on Morelos property.

 Therefore, based on the above rationale and valuation, we recommend a "Buy" rating at the closing price of CAD 13.12 on December 30, 2021.

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

Technical Summary Analysis

One-Year Price Chart (as on December 30, 2021). Source: REFINITIV, Analysis by Kalkine Group

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

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.