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 Updates:

• Bullish Guidance: For the full-year 2022, the management expects its attributable gold production in between 2.15 moz, which is higher than the FY21 production of 2.08 moz. The Company continues to expect higher production in the second half of the year, which is largely driven by increased production at Paracatu, Tasiast and La Coipa. The company would be conducting exploration program planned at the Great Bear project and expects capital expenditure of USD 140 million for the above.

• Ample liquidity: In Q1FY22, the company reported its quick ratio and current ratio of 1.73x and 3.31x, respectively, as compared to the industry median of 1.55x and 2.66x, respectively. This indicates better working capital management and improved liquidity. Moreover, the company reported its available liquidity of USD 1.7 billion, which is sufficient to fund its upcoming operations.

Source: Company Presentation

• Impressive prospects from Paracatu mine: The company expects a strong production performance from its Paracatu mine, which is Tier 1 gold mine located in Brazil. This mine has a long mine life that extends upto FY 2032. This mine is coming under the world’s largest gold operations, with annual throughput of ~60 million tonnes and has potential mine life extensions along the strong operating performance and sizeable resource. For FY22, the company expects to deliver higher production which would likely contribute to the production growth in FY22, which is a key positive.

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.

Q1FY22 Financial Highlights:

Q1FY22 Income Statement Highlights (Source: Company Report)

• Kinross announced its Q1FY22 result, wherein the company posted its revenue of USD 768 million, as compared to USD 768.7 million in pcp. In Q1FY22, the company reported gold sales of 495,475 oz, down 10% over pcp. This was partially offset by increase in average realized gold price of USD 1,875/oz, up 5% on y-o-y basis.

• The quarter was marked by a higher cost of sales, an increase in other operating expenses and higher exploration and business development costs. However, general & administrative costs also stood at par with the previous quarter. Hence, operating earnings stood lower at USD 5 million, as compared to USD 144.3 million in pcp.

• The group posted its net loss of USD 9 million, as compared to a net profit of USD 149.2 million in pcp. The decline was primarily attributable to lower operating earnings, and loss earnings from discontinued operations after tax amounting USD 606.1.

Valuation Methodology (Illustrative): Price to CF-based

Analysis by Kalkine Group

Stock Recommendation:

The company has a strong operating track record and has proven history of achieving production targets, which is encouraging. The company expects a steady production profile with more than 2 million ounces per year expected till 2024. We have valued the stock using the P/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 Torex Gold Resources Inc, OceanaGold Corp etc. Considering the aforesaid facts, we recommend a ‘Buy’ rating on the stock of Kinross at the last closing price of CAD 5.77 on May 19, 2022.

One-Year Technical Price Chart (as on May 19, 2022). Analysis by Kalkine Group 

The reference data has been partly sourced from REFINITV 

   Technical Analysis Summary

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