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Credit Suisse Reinstates Coverage on Kinross Gold Corp

- By Alberto Abaterusso

Kinross Gold Corp. (KGC) was flat on Thursday and closed at $2.80 per share on the New York Stock Exchange following the news that Credit Suisse has reinstated its coverage on the Canadian gold stock with a neutral rating.

The stock was up 0.52% to $2.82 per share in early trading on Friday. The rating is according to a research note dispatched by the Swiss analyst on Sept. 6.

The neutral rating is suggesting the existence of more opportunities for options investors and other traders, who use certain trading strategies for neutral markets.

The rating of Credit Suisse is preceded by four ratings that Kinross Gold Corp. received over the last 12 months. This year Kinross Gold Corp. was downgraded by RBC Capital from outperform to sector perform on Aug. 20 and by BMO Capital from outperform to market perform on April 10.

Last year the stock of the Canadian gold producer was upgraded by Macquarie from neutral to outperform on Nov. 10 and by Citigroup from sell to neutral on Sept. 1.

As of September 2018, eight analysts out of 19 suggested buying Kinross Gold. Eleven analysts recommended to hold. The recommendation rating is 2.4 out of 5. The range is 1 (strong buy) to 5 (sell).

The Swiss firm released a price target of $4 per share of Kinross Gold Corp. The new price target of Credit Suisse represents a nearly 43% upside from the current share price and should drag the average down slightly to $4.65 per share. The updated average will be a mean of 18 estimates which will range between $3.25 to $6 per share.

Kinross Gold is cheap. It has a market capitalization of $3.49 billion that per-share is below the 200-, 100- and 50-day simple moving average lines. The share price has a 52-week range of $2.78 to $4.91. The stock has fallen 42% for the 52 weeks through Sept. 6. The price-book ratio is 0.76 versus an industry median of 1.74, and the EV-to-Ebitda ratio is 3.55 versus an industry median of 9.3.

The 14-day relative strength index is 28.81, within a range of 20 to 80. That means that the stock is near oversold levels. That is suggesting that a correction into the share price to the upside may follow soon.

The Canadian producer of gold has the potential to appreciate nearly 70% within the next 52 weeks, commodity prices permitting.

Kinross Gold also has a short-term catalyst. At the beginning of the current quarter, the mill facility at Tasiast mine in Mauritania has reached its target capacity rate of 12,000 tons of material processed per day. That milestone should translate into a substantial increase in the gold production of Kinross Gold Corp. for full fiscal 2018 since the Mauritanian mine is a strong contributor to the total output of the miner. Just to give an idea about the weight of the Tasiast mine on the company's total production of gold: In the second trimester of 2018 the Tasiast mine accounted for a meaningful 8% to the total output of attributable gold equivalent.

For full fiscal 2018, consensus is expecting that Kinross Gold will upload the supply side of the market with a production of 2.375 million ounces of equivalent gold to 2.625 million ounces of equivalent gold. The production is forecasted to come in at an all-in sustaining cost of $926.25 per ounce to $1,023.75 per ounce of equivalent gold sold.

The business relies on a moderately solid balance sheet that GuruFocus is rating with a score of 5 out of 10.

The availability of a total liquidity of approximately $2.5 billion plus the fact that the financial burden is not stressed by short-term duties of repayment, are providing the miner with an ample financial flexibility. That means that the impact of the volatility of the gold market on decisions of how much to invest in the organic growth of the company and when to do so are under the management of Kinross Gold Corp.

Even during tough conditions in the gold market, there appears to be low risk that the company will revise its plan for future growth. At a gold mining company, the possibility of future expansion and its integrity is the spice for business continuity, more than in any other industry. The mining industry is a capital-intensive industry. The operators need to have enough financial resources to keep on running production from existing mines and to lay down the foundations to guarantee future output.

The expansion of the Tasiast mine in Mauritania, which is already bearing short-term catalysts for the shareholders of Kinross Gold Corp., is an example. There Kinross Gold Corp. is investing about $300 million.

For full fiscal 2018, the miner is targeting to use funds for capital expenditures ranging between $1.021 billion and $1.129 billion.

The Canadian miner can retrieve adequate financial resources also from a profitable line of gold-producing properties, which are located in Canada, the U.S., Russia, Brazil, Chile, Ghana and in Mauritania.

Kinross Gold Corp. tends to be more profitable than most of its peers. The Ebitda margin of Kinross Gold Corp was 38% over the last four quarters to the second trimester of 2018, versus an industry median of 23%. The Ebitda margin is one of the most representative ratios of a gold mining company's profitability.

Disclosure: I have no positions neither in Kinross Gold Corp nor in any other securities I might have mentioned in this article.

This article first appeared on GuruFocus.