Kinross Gold Corporation

KGC Details

Key Positives:

Industry Above EBITDA Margin (61.4% in Q4 FY21 vs Industry median of 37.5%), Positive 2022 Guidance, Global Operations, Strong Balance sheet with robust debt coverage ratio (Net debt is just 0.50 times of its FY21 EBITDA), Adequate Liquidity with Current ratio improved to 2.63x at the end of FY21 vs. 1.82x at the end of FY20.

Key Negatives:

Metal Price Risk, Regulatory Risk, Long Cash Conversion Cycle (163.2 days in Q4 FY21 vs Industry median of 52.7 days)

Kinross Gold Corporation (NYSE: KGC) is a Canadian gold mining company specializing in gold exploration and acquisition, the extraction and processing of gold-bearing ore, and the reclamation of gold mining properties. It has mines in Canada, the United States, Russia, Brazil, Chile, Ghana, and Mauritania, among other countries.

Latest News:

• Development Plan Update: On April 7, 2022, KGC is delighted to share an update on its development plan for the Great Bear project in Red Lake, Ontario. In 2022, Kinross aims to finish about 200,000 metres of drilling with ten drill rigs, focusing on the LP Fault zone, the project's most important finding.
• Sale of Russian Assets: On April 5, 2022, KGC stated that it has agreed to a final agreement with the Highland Gold Mining group of businesses and its affiliates to sell its Russian assets for USD 680 million in cash.

FY22 Results:

• Increase in CAPEX activity: The company reported an increase in capital expenditures (CAPEX) for FY21 to USD 938.6 million, staying within the company's annual forecast range, from USD 916.1 million in FY20, owing to more significant expenditures for La Coipa development activities, studies at Lobo-Marte and Udinsk, and an increase in capital stripping at Tasiast.
• Top Line update: Due to a fall in sales volume and average realized gold price, the business reported an 11.49% drop in total revenue to USD 3.73 billion in FY21 (ending December 31, 2021) from USD 4.21 billion in FY20.
• Return to Shareholders: Kinross returned more than USD 250 million in cash to shareholders in 2021, including USD 151.1 million in dividends and USD 100.2 million in the purchasing and cancelling of 17.6 million ordinary shares as part of its share buyback programme.

Key Risks:

• Metal Price Risk: The unpredictability and uncontrollability of gold and copper prices on the worldwide market substantially influence KGC's operations. As a result, any unfavourable pricing change might have a detrimental impact on their bottom line.
• Regulatory Risk: KGC is a gold mining firm governed by several federal and state regulations. As a result, the company's profitability may be harmed by introducing stricter standards or noncompliance with needed laws.

Outlook:

 Future Estimates. (Source: Company’s Q4 FY21 Earnings Release)

Valuation Methodology: EV/SALES Multiple based Relative Valuation

(Source: Analysis by Kalkine Group)

Stock Recommendation:

KGC's stock price has fallen 14.24% in the past twelve months and is leaning towards the lower band of its 52-week range of USD 4.90 to USD 8.34. We have valued the stock using the EV/Sales multiple based relative valuation methodology and arrived at a target price of USD 7.35.

Given, elevated underlying commodity prices, we believe company will deliver decent performance in upcoming quarters. Further,the company's sound balance sheet, solid margins, underused CAPEX activity, present valuation, and related risks, we recommend a "Hold" rating on the stock at the closing market price of USD 6.14, unchanged, as of April 14, 2022.

KGC’s 1 Year Technical Price Chart (as of April 14, 2022). Source: REFINITIV, Analysis by Kalkine Group

Note 1: The reference data in this report has been partly sourced from REFINITIV.