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.

Key Highlights:

• Sale of Russian Assets: The company recently reported that it has sold its Russian assets to Highland Gold Mining group of companies for total consideration of USD 680 million in cash. The transaction is likely to be completed in different tranches before the end of 2027. However, this is subjected to the approval of the Russian government and the finalization of certain ancillary agreements.

• Reported higher 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. 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 in the coming days.
  

• Increase in the dividend distribution: In FY21, the company reported a dividend payment of USD 151.1 million, which is considerably higher than USD 75.5 million in FY20. This is encouraging, as most of the companies are lowering or discarding their dividend payment in order to retain liquidity.

• Result Update: The company would disclose its first quarter FY22 result on May 10, 2022, after market close.

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. 

FY21 Financial Highlights:

FY21 Income Statement Highlights (Source: Company Report)

• Kinross announced its full-year results, wherein the company posted its revenue of USD 3,729.4 million in FY21, 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 higher average metal prices realized (USD 1,797/oz in FY21 v/s USD 1,774/oz in FY20).

• The quarter was marked by a higher cost of sales, an increase in other operating expenses and higher exploration and business development costs. Moreover, general & 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 as compared to USD 1,899.4 million in FY20.
• The group posted its net earnings of USD 218.7 million, significantly lower than USD 1,342.4 million in FY20. The slide was primarily attributable to lower operating earnings, partially offset by lower finance expense coupled with a lower net income tax expense.
  

Valuation Methodology (Illustrative): Price to CF-based

Analysis by Kalkine Group

Stock Recommendation:

For the full-year 2022, the management expects its attributable gold production in between 2.65 moz, which is higher than the FY21 production of 2.07 moz. The Attributable production cost of sales is expected at USD 830/ Au eq.oz.   We have valued the stock using the P/CF based relative valuation method and have arrived at a single-digit upside (in percentage terms). For the said purposes, we have considered peers like Torex Gold Resources Inc, OceanaGold Corp etc. Considering the aforesaid facts, we recommend a ‘Hold’ rating on the stock at the last closing price of CAD 7.75 on April 14, 2022.

One-Year Technical Price Chart (as on April 14, 2022). Analysis by Kalkine Group

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