Kinross Gold Corporation (TSX: K) is a Canadian-based global senior gold mining company with operations and projects in the United States, Brazil, Mauritania, Chile, Canada, Russia, and Ghana.

Key Highlights:

• Favorable guidance: The management is optimistic regarding the production update and estimated annual gold production for FY22 approx. 2.15 million oz (ounce) (+/- 5% range), where the 2HFY22 is expected to deliver higher production from Paracatu, Tasiast & La Coipa. For FY23 the annual gold production is expected around 2.3 million oz (+/- 5% range) and in FY24 the annual production could be 2.1 million oz (+/- 5% range). The capital expenditure for FY22 has been curtailed to USD 850 million (+/- 5%) and for FY23 & FY24 is set at around USD 750 million each year. The rising demand for the metal which is supported by the inflationary pressure could be a catalyst for the rise in the gold prices, which could be a key positive for the company in the coming future.

• Strong liquidity profile: The company's quick ratio at the end of Q1FY22 was reported at an elevated level of 1.73x, as compared to the industry median of 1.56x. Further, the company’s current ratio at the end of Q1FY22 stood at 3.31x, which is higher than the industry median of 2.61x. The higher quick ratio and current ratio state the company’s ability to meet its short-term obligations falling within one year time, without any hindrance, ensuring the smooth running of the business operations.

Source: Refinitiv, Analysis by Kalkine Group

• Global mining leader in Environmental, Social & Governance (ESG): During the group has moved to the 94^th percentile in 2021, from the S&P ESG Global and has been getting the ESG assessment done since 2005. Almost 80% of the water is recycled at the company’s mines and the company has generated almost USD 3.5 billion in the form of various economic benefits via taxes, community support, and procurement, in the countries where it is operating. Further, the company is determined to achieve its target of net-zero greenhouse gas emissions by 2050.

• Project updates: The company’s Tasiast 24k project is now continuously achieving the throughput of 21,000 tonnes per day while reducing the commissioning downtime. The second phase of the project is expected to be completed soon and set to deliver the throughput of 24,000 tonnes per day by mid FY23. Recently the company announced the successful acquisition of the Great Bear project in Red Lake, Ontario, and is set to commence a pre-feasibility study in 2023.

Risks associated with investment

The group is majorly exposed to the volatility in the gold prices and any unfavorable sustained movement in the prices, can hamper the company’s financial health. Also, the company is facing other key challenges such as currency volatility, change in mining laws, accidents in the mines, etc. to name a few.  

Financial overview of Q1FY22 (Expressed in millions of USD)

Source: Company Filing

• The group reported total revenue from the metal sales of USD 768.0 million in Q1FY22 as compared to USD 768.7 million in Q1FY21. The total gold equivalent ounces sold were 409,538 at an average realized gold price of USD 1,875 / oz during Q1FY22 against the 430,045 ounces sold at an average realized price of USD 1,787 / oz in Q1FY21, which balanced the over sales during Q1FY22.

• During Q1FY22, the gross profit declined to USD 176.6 million as compared to the gross profit of USD 234.7 million in Q1FY21. Because of the rising production cost of sales in the same period, the gross profit declined in Q1FY22.

• The group reported net loss of USD 523.9 million in Q1FY22 as compared to the net earnings of USD 149.2 million in Q1FY21.

Valuation Methodology (Illustrative): Price to Cash flow-based

Analysis by Kalkine Group

Stock Recommendation:

The company recently declared a quarterly dividend of USD 0.03 per common share for Q1FY22, which is to be payable on June 16, 2022. The management gave strong annual production guidance for FY22 around 2.15 million oz (+/- 5%), FY23 is estimated close to 2.3 million oz (+/- 5%) and FY24 is expected to be 2.1 million oz (+/- 5%), and the CAPEX for FY22 is lowered to USD 850 million. On the valuation front, the stock is measured on the Price/ Cash flow-based relative valuation multiple, and the stock is currently trading at 3.9x as compared to the industry (basic materials) median of 4.1x, suggesting the stock is still undervalued. We have considered Endeavour Mining PLC., Yamana Gold Inc., etc. as the peer group for the comparison.

Therefore, based on the above rationale and valuation, we recommend a “Buy” rating on the stock of K at the last closing price of CAD 5.91 on June 2, 2022. Additionally, the 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.z

One-Year Technical Price Chart (as of June 2, 2022). Analysis by Kalkine Group

Note- The reference data has been partly sourced from REFINITV

Technical Analysis Summary

Disclaimer

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