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Kinross Gold Corp Promises to Outperform

Gold Outlook

On the tailwind of renewed oronavirus fears, the share prices of several gold producers are moving higher as investors increase their demand for the yellow metal, which serves as a safe-haven asset against volatility and uncertainty.

On Thursday, Feb. 13, the VanEck Vectors Gold Miners (GDX) exchange-traded fund, which is used as a benchmark for the gold mining industry, posted a 0.71% jump to a share price of $28.32 at close.

Though it is difficult to predict this early on, epidemiologists anticipate that the inflection point of the coronavirus outbreak may peak in late-February, which may help create enough momentum for gold (which trades at $1,575.05 per ounce on the London bullion market as of Feb. 13) to break above $1,590.

On the tailwind of a new market bullish sentiment, the gold price may hit a 7-10% upside from Thursday's closing price before the end of the first part of 2020.

Kinross Gold Corporation

Six Wall Street sell-side analysts have suggested positive ratings for Kinross Gold Corporation (NYSE:KGC). The Canadian gold mining company, which is one of the largest in the industry, has a mean recommendation rating of overweight and an average target price of $5.95, which represents a 16% upside.

The stock already topped the benchmark by 20% in the past year when gold gained about 19%. However, the rise in the commodity price wasn't the only catalyst to the share price of Kinross. The market was also happy to see that the miner increased the total production by 2.3% to 2.51 million ounces of gold equivalent in 2019 (up from 2.45 million ounces in 2018) at an all-in sustaining cost (AISC) of $983 per ounce sold.

The mines, which are located in the Alaska, Nevada, Brazil, West Africa and Russia, should continue to perform strongly in 2020 as well, which puts Kinross on track to accomplish the ninth consecutive year of output, cost and capital within the company's guidance and generate solid free cash flow.

For the current year, the company guides to produce approximately 2.4 million ounces of gold equivalent, at a lower AISC of $970 per ounce of equivalent gold sold. Total funds to allocate to capital expenditures will range between $855 million and $945 million.

Kinross Gold will produce the precious metal from its proven and probable reserves accounting for approximately 24.33 million ounces of gold (with a grade of 0.7 grams of metal per ton of ore) and for approximately 55.65 million ounces of silver (with a grade of 58.1 grams of metal per ton of ore). These figures are as of Dec. 31, 2019.

In 2019, the miner generated a robust operating cash flow of $1.2 billion (up 55.3% from $789 million in 2018). This contributed to improve the company's liquidity substantially to around $2 billion, giving Kinross Gold sufficient margin to carry out exploration activities and development projects.

If Kinross Gold Corp can invest its financial resources in an efficient and effective manner, it can increase the average life of its operation considerably from the current 10-11 years up to more than 25 years. Of course, metals prices would need to stay supportive.

The stock ($5.14 share price at close on Thursday) is not cheap, as the price is currently above the 200-, 100- and 50-day simple moving average lines (about 17% over the middle point of the 52-week range of $3 to $5.47).

The stock has a market capitalization of $6.44 billion and a price-book ratio of about 1.21 versus the industry median of 1.5.

The 14-day relative strength indicator of 63 suggests the stock is neither overbought nor oversold.

Disclosure: I have no positions in any security mentioned.

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This article first appeared on GuruFocus.