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Consider Kinross Gold Corp for 2019 Gold Bull Market

- By Alberto Abaterusso

Gold continues trending up.

The bullion closed at $1,316.55 per troy ounce on the London market Friday, which was a 2.6% upside from the beginning of the year. The cumulative average of $1,298.72 per troy ounce for 2019 is 2.4% higher than the cumulative average of $1,268.49 per troy ounce for 2018.

Gold Futures - Apr 19 (GCJ9) are also increasing. Reporting a price of $1,322.10 per troy ounce at close Friday, the contracts through which the precious metal is negotiated on the COMEX are 3% up from the beginning of 2019. The average price of gold futures is $1,303.04 per troy ounce so far this year versus an average price of $1,289.29 per troy ounce.


Will gold keep on rising?

The patient monetary policy of the Federal Reserve is driving the price of the commodity up. This is because a neutral stance of the U.S. Central Bank on Federal interest rates promotes a low real yield, which is a positive environment for gold prices to grow. Such an environment lowers the opportunity cost to hold the precious metal.

The Federal Reserve has left the federal funds rate target unchanged at 2.25-2.5% with the decision made during January's monetary policy meeting.

Since increasing recession fears and sluggish manufacturing data are enhancing the chances that the Federal Reserve will be on hold next month as well, the yellow metal may break above $1,325 an ounce.

To investors who may want to take advantage of rising gold through its publicly traded producers I suggest Kinross Gold Corp. (KGC). The Toronto, Canada-based gold and silver producer has mineral assets located in the Americas, Russia, Ghana and Mauritania. Kinross Gold Corp.

It is demonstrating that it is better skilled than the overall mining industry at profiting from the positive momentum for gold. The below chart illustrates that the share price of Kinross Gold Corp. has outperformed the Van Eck Vectors Gold Miners ETF (GDX) by 2% so far this year.

Source of the screenshot: GuruFocus.com

The mining company forecasts that it will take advantage of rising gold prices in 2019 with a production target of equivalent gold of 2.5 million ounces. This is a prime output in the industry as only a few other gold producers can do better than Kinross Gold Corp. in terms of annual gold production. But these companies such as Barrick Gold Corp. (GOLD) and Newmont Mining Corp. (NEM) are also the world's largest gold miners.

If the company produces such a volume of gold equivalent in 2019, it will be the eighth year in a row that it has met its guidance for annual production.

The company's Bald Mountain mine in Nevada is performing well. This together with higher gold grades, recovery rates and throughput at the Paracatu mine in Brazil should be the main factors driving full-year 2019 production.

In northwest Mauritania, Kinross Gold Corp. is expanding the open-pit operation of its Tasiast mine. The expansion project consists of two phases. The first one has been successfully completed and thanks to better-than-expected recovery rates and throughputs, the Tasiast mine had record gold production in the final quarter of 2018. Hopefully, mining rates at Tasiast will keep supporting the company's overall production.

The portfolio of activities of Kinross Gold Corp. also includes the Fort Knox mine in Alaska, the Round Mountain in Nevada, the Chirano mine Ghana, the Kupol and Dvoinoye in Russia, and several growth and exploration projects.

In 2018 the miner produced 2,475,068 ounces of gold equivalent at an all-in sustain cost of $965 per ounce, total revenues of $3.21 billion and adjusted net profit of $128.1 million or 10 cents per share. Year-over-year, production decreased 8.3%, total revenues fell 2.7% and adjusted earnings per share declined 28.6%.

Even though figures were lower than 2017, the results were solid as they enabled Kinross Gold Corp. to stay in line with the mining industry's Ebitda margin of approximately 24%. In addition, Kinross Gold Corp. generated a cash flow of approximately $790 million from operations in 2018, reflecting a 17% decline year-over-year.

There are some short-term catalysts that may produce a share price increase in the first quarter of 2019. This is the beginning of the processing circuit of the Bald Mountain Vantage Complex and the finalization of the scoping study for the Lobo-Marte in Chile. These events are usually important as they influence future production and the possibility of extending the life of operations.

With $1.9 billion in cash and securities as of Dec. 31 and no debt maturities through the end of 2021, equip Kinross Gold Corp. has enough financial means to advance the mineral projects.

Higher gold prices should offset a higher AISC of $995 per ounce of gold equivalent and a slightly increased capital expenditure of $1.05 billion, both forecasted for full year 2019.

Kinross Gold Corp. is on track to meet guidance on production and costs for the eighth consecutive year in 2019.

Wall Street has issued an overweight recommendation rating for Kinross Gold Corp., meaning that analysts foresee the gold stock outperforming either the industry or the overall market. The average target price of $3.98 per share reflects a 14.7% upside from the share price of $3.47 at close Friday. The share price results from an 11% depreciation during the 52 weeks through Feb. 15. The market capitalization of the stock is about $4.32 billion. The share price at close Friday was 46.6% above the 52-week low of $2.38 and 18.1% from the 52-week high of $4.12.

The 14-day Relative Strength Indicator is 64, which suggests the stock is neither overbought nor oversold.

The price-book ratio is 0.95 versus an industry median of 1.74 and the EV-Ebitda ratio is 7.67 compared to an industry median of 9.3.

Disclosure: I have no positions in any security mentioned.

This article first appeared on GuruFocus.