Kinross Gold Corporation

Kinross Gold Corporation (TSX: K) is a Canada based gold mining company whose projects are located in the United States, Brazil, Russia, Mauritania, Chile and Ghana. 

Key Highlights:

• Ample Liquidity and prudent capital management: At the end of March 2021, the company reported handsome liquidity of USD 2.6 billion, which includes a cash and cash equivalents balance of USD 1.05 billion, available credit of USD 1.56 billion. Moreover, the management assumes that it would generate stable free cash flow from its operations, supported by elevated performance primarily from its Kinross project, supported by rising production metrics. The above is sufficient to fund its near-term capital requirements. Moreover, the company is planning to reduce its total debt level by USD 500 million, which would further improve the company’s financial flexibility.

Data Source: Company 

• First-ever Diamond drilling: Recently, the company disclosed encouraging prospects from its 2020 soil sampling at its Betty property. The result indicates multiple targets with potential for several mineral deposit types, including gold and precious metal. Notably, the Betty property is located beside the Newmont's Coffee Gold deposit and porphyry and epithermal gold mineralization at Triumph Gold Corp. Moreover, the company confirmed that it would pursue first- ever diamond drilling activity across the same project.
  

• Positive long-term prospects from Chile: The company has its mining presence in Chile and operates through its projects like La Coipa Restart, Lobo-Marte etc. The above location has sound mining opportunities with huge deposits of minerals like gold and silver. The company is going through several studies, and the management believes the long-term mining prospects in Chile remains bright, hence, company is well poised to take advantage of the upcoming opportunity.

Q1FY21 Financial Highlights:

• Kinross announced its first-quarter result, wherein the company posted revenue of USD 986.5 million, higher than USD 879.8 million in Q1FY20. The increase was driven by a higher realized price of gold (USD 1,787/ ounce v/s USD 1,581/ounce in pcp).
• Gross profit surged to USD 359.6 million, from USD 265.4 million in pcp, thanks to the elevated revenues, partially offset by a higher cost of sales (USD 626.9 million v/s USD 614.4 million in pcp).
• The quarter was marked by a surge in other operating expense (USD 57.9 million v/s USD 21.9 million in pcp), an increase in exploration and business development costs (USD 25.4 million v/s USD 19.1 million in pcp) and a slightly higher general and administrative costs (USD 34.0 million v/s USD 31.8 million in pcp).
• Net earnings were reported at USD 149.5 million, increased from USD 122.7 million in pcp. The increase was driven by higher operating earnings, a lower finance expense (USD 19.3 million v/s USD 25.7 million in pcp), partially offset by higher net income tax expense (USD 77.9 million v/s USD 45.0 million in pcp).

Q1FY21 Income Statement Highlights (Source: Company Report)

Risks: As the operations of the company depends on the gold prices, a correction in gold prices are likely to dampen the company’s performance. Moreover, unable to add new mineral exploration would further lower the company’s reserves.

Valuation Methodology (Illustrative): Price to Cash Flow

Stock Recommendation:

For FY21, the group estimates its gold equivalent production at ~2.4 million ounces, while production cost of sales and all-in sustaining cost is expected at USD 790/Au eq. oz and USD 1,025/Au eq. oz, respectively. For FY21, the group expects its capital expenditure at ~USD 900 million. We have valued the stock using the Price to CF based relative valuation method and have arrived at a double-digit upside (in percentage terms). For the said purposes, we have considered peers like Barrick Gold Corp, Yamana Gold Inc etc. Considering the aforesaid facts, we recommend a ‘Buy’ rating on the stock at the closing market price of CAD 9.65 on June 10, 2021.

One-Year Technical Price Chart (as on June 10, 2021). Analysis by Kalkine Group

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

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