Gold prices continue to hold above $1,300. As I write this on Mar. 22, it will be the third straight week of gains for the precious metal, which is good news if you’re Kinross Gold (NYSE:KGC) CEO J. Paul Rollinson, and fantastic news if you own KGC stock.
It’s been a while since I’ve written about a gold stock but given the price trend seems to be moving higher, I couldn’t help but take a look at one of Canada’s larger gold producers.
Once trading above $20 (August 2009) KGC stock is looking like an excellent value play at under $4.
Here are three reasons why.
The Business Outlook is Good
One of the last InvestorPlace writers I’d expect to be recommending Kinross stock is Josh Enomoto; he usually covers cryptocurrencies and other wacky technology. But he did do exactly that in November 2018, including it in a group of ten high-growth stocks for young investors (kidding aside, let me say that Josh’s stock recommendations would look good in any portfolio, not just those for young investors, but I digress).
What caught my eye was Josh’s comment that Kinross met its second quarter 2018 results. Since Josh made the recommendations last November, the company’s delivered its third- and fourth-quarter results.
Several things stand out in fiscal 2018.
First, the company met or exceeded its annual production guidance. It also met or came in under both its annual cost guidance and capital expenditures. These are all signs that the business is operating at a very efficient level.
It’s learned from an extended period of low gold prices. That can only help it as prices drift higher in the future.
A second thing that stands out is the production efficiency of its mines. Paracatu in Brazil and Bald Mountain in Nevada both had record annual production while Tasiast in Mauritania set record production in the fourth quarter producing 91,548 gold equivalent ounces, 50% higher than a year earlier.
Finally, in 2019, Kinross expects to produce 2.5 million gold equivalent ounces at the cost of $730 per ounce, both the same as this past year. The company projects the price of gold in 2019 will average $1,200 an ounce. If current prices hold or drift a little higher, its operating cash flow in 2019 should be higher than the $789 million it generated this past year
With several projects on the go, 2019 should continue to hold considerable promise.
A Sound Balance Sheet
Kinross finished 2018 with $1.7 billion in total debt, $1.5 billion available on a revolving credit facility and $349 million in cash and cash equivalents. None of its debt is due before 2021, and it extended its revolver last July by one year to an August 2023 maturity.
Liquidity isn’t an issue for the company,which is good news as it continues to get some of its development projects ready for online production.
In the past two years, it’s had capital expenditures of $898 million and $1.04 billion in 2017 and 2018 respectively. The increase in 2018 was due to higher spending at Bald Mountain, Tasiast, and Round Mountain in Nevada. In 2019, it expects capital expenditures will be slightly higher at $1.05 billion.
With plenty of cash flow and total debt that’s a reasonable 39% of its market cap, Kinross has the financial stability to continue to develop existing and future properties.
At less than $4 there doesn’t appear much downside. Many of its financial metrics are lower than its peers. For example, its price-to-sales ratio is 1.35 while the industry average is 2.46.
A Woman in the CFO Chair
On Mar. 4, Kinross announced that current Andrea Freeborough, the company’s vice president of investor relations and development, would replace Tony Giardini who is leaving after more than six years in the job.
Freeborough was instrumental in the company’s purchase of two Brazilian hydroelectric plants that will save its Paracatu mine considerable costs. She was also named one of the 100 Global Inspirational Women in Mining in the UK in 2016.
At Kinross since 2009, Freeborough is an excellent addition to the Kinross C-Suite. First, because she’s good at her job, but also because it puts another woman in a senior position, and statistics show that companies with more women in upper management and on the board outperform those with less.
The Bottom Line on KGC Stock
I’m with my colleague. It makes sense to have some commodities and precious metals in your portfolio to act as a counterbalance to all your other holdings.
To that end, I believe Kinross is a reasonable bet at current prices.
At the time of this writing Will Ashworth did not hold a position in any of the aforementioned securities.
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