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 

• Update on Great Bear Resources acquisition: Recently, the company stated that it had reached a definitive deal to buy Great Bear Resources Ltd. ("Great Bear"), which owns the flagship Dixie project in Ontario, Canada's prolific Red Lake mining area. The Dixie project has the potential to become a top-tier deposit that may sustain a large, long-life mine complex, boosting Kinross' long-term production prospects.
  

• Robust production guidance: The company intends to produce 2.65 million attributable Au eq. oz. (+/- 5%) from its operations in 2022, which is a 28 percent increase above production in 2021. In 2023, it has planned to expand its annual production to 2.8 million attributable Au eq. oz. (+/- 5%). Furthermore, it anticipates producing 2.6 million attributable Au eq. oz. in 2024 and has maintained a solid production profile of at least 2.5 million Au eq. oz. per year for the balance of the decade.

Source: Company Presentation

• Robust Free Cash Flow Yield: The company is continuously generating the free cash flows, higher than the average of its peers, which is a key positive. Its mines perform well as the management effectively controlled the operational challenges caused by the COVID-19 pandemic. Furthermore, the expected enhanced production along controlled cost will also derive strong free cash flow performance.

Source: Company Presentation

• Ample Liquidity and prudent capital management: At the end FY 2021, the company reported strong liquidity of USD 1.9 billion, which includes a cash and cash equivalents balance of USD 532 million along available credit of USD 1.4 billion. Moreover, the company repaid USD 500 million in Senior Notes in the reported period, which improved the company’s financial flexibility.

Source: Company Presentation

Risks associated with investment

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

Financial overview of FY 2021 (Expressed in millions of USD)

Source: Company Filing

• The company announced its FY 2021 result, wherein it posted revenue of USD 3,729.4 million, compared to USD 4,213.4 million in FY2020. The decline in the revenue was mainly due to lower attributable gold equivalent ounces produced and sold compared to previous corresponding period. Partially supported by higher average realized price of gold, which stood at (USD 1,797/ounce v/s USD 1,774/ounce in pcp).

• Gross profit stood lower at USD 1,017.9 million in FY 2021, compared to USD 2,296.3 million in pcp mainly due to higher total cost of sales as a percentage to revenue.

• The period was marked by a surge in other operating expense (USD 294.6million v/s USD 186.5 million in pcp), an increase in exploration and business development costs along higher general and administrative cost, dragged operating earnings at USD 463.6 million compared to USD 1,899.4 million in pcp.

• Primarily on the back of above discussed rationales the net earnings in the reported period fell to USD 218.7 million, against USD 1,358.7 million in pcp.

Valuation Methodology (Illustrative): EV to EBITDA Based

Stock recommendation

Despite significant hurdles in 2021, the company produced around 2.1 million ounces, with plans to boost output to 2.65 million and 2.8 million ounces in 2022 and 2023, respectively. We believe that because its long-term production profile is solid, it could generate strong free cash flow. Furthermore, the business's development projects are progressing well, with commissioning beginning at La Coipa, where the company upped life-of-mine output expectations to around 1 million ounces. It also announced an agreement to buy Great Bear Resources, which will help to boost the company's long-term growth prospects. Hence, considering the aforesaid facts, we recommend a “Hold” rating on the stock at the closing price of CAD 7.38 on February 17, 2022.

One-Year Technical Price Chart (as on February 17, 2022). Source: REFINITIV, Analysis by Kalkine Group 

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

Disclaimer

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