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Alberto Abaterusso
Alberto Abaterusso
Articles (582) 

Kinross Gold Well Positioned for Organic Growth

Cash flow from operations increased substantially in 2016

February 17, 2017 | About:

Kinross Gold Corp. (NYSE:KGCreported the fourth quarter of 2016 and whole year 2016 financial results this week.

The Canadian gold producer reported adjusted net loss per share of 4 cents, a 33.3% improvement from the same quarter of the previous year, and missed analysts’ expectations on earnings by 5 cents.

Analysts estimated EPS of 1 cent on average, ranging between a low estimate of -2 cents and a high estimate of 6 cents.

Source: Yahoo Finance

Despite an increase on a year-over-year basis, in the costs sustained per equivalent ounce of gold sold ($712 per gold equivalent ounce or 3.5%), an all-in sustaining cost (AISC) per equivalent ounce of gold sold ($1,012 per gold equivalent ounce sold or 2.1%) and AISC per ounce of gold sold on a byproduct basis ($1,010 or 2.2%), Kinross Gold significantly improved the bottom line and generated a substantial cash flow from its core operations located in the Americas, Russia and West Africa during the last quarter of 2016. This was due to an increase in the amount of equivalent ounces of attributable gold sold (738,087 equivalent ounces or 16.7%) and to a higher price ($1,217, 9.8%) the miner realized per ounce of gold sold.

During the quarter in question, the miner generated a CFO of $302.6 million, a 66.1% increase on a year-over-year basis and an adjusted CFO of $211.6 million, a 3.8% increase from fourth-quarter 2015.

Last quarter results continue the positive trend in Kinross’ bottom line and operating cash flow generation that started at the beginning of 2016 concomitant to the rally in the underlying commodity’s price.

A huge contribution to the improvement of Kinross’ bottom line and cash flow came from the addition of Bald Mountain and the 50% of Round Mountain to the asset base during 2016, which determined an increase in the amount of ounces of gold produced (22%) and sold (31.7%) on a year-over-year basis, by the Americas region segment. The latter contributes to approximately 60% of the company’s total ounces of gold produced and sold. The West African and the Russian regions, which both performed well during fiscal-year 2016, contribute approximately 17% and 23% to Kinross’ total amount of gold produced and sold.

Kinross closed the fiscal year 2016 with a significant improvement in the company’s bottom line and cash flow from operations even though the operating costs increased compared to the prior year. In 2016, the miner sustained $712 per equivalent ounce of gold sold, 2.3% on a year-over-year basis, AISC of $984 per equivalent ounce of gold sold, 0.9% on a year-over-year basis and an AISC of $975 per ounce of gold sold on a byproduct basis, 0.4% from 2015.

In 2016, the miner generated a profit of $93.0 million, up 2.2% from 2015, a CFO of $1.10 billion, a 32.2% increase on a year-over-year basis and an adjusted CFO of $93 million, a 2.2% increase from fourth-quarter 2015 while the price realized by Kinross for one ounce of gold sold was $1,249 on average, 7.8% higher than 2015.

The cash flow of $1.10 billion generated by the miner in 2016 from its operations led to a free cash flow of $465.4 million after having deducted funds of $633.8 million used by Kinross to upgrade its asset base with the addition of Bald Mountain and 50% of Round Mountain, maintain its mine sites and advance the Tasiast Phase One project.

In 2016, Kinross used fewer funds than it expected to allocate as capex according to its guidance, but it increased by 3.9% from 2015. For 2016, the miner expected to spend approximately $755 million as capex.

For 2017, the Canadian miner says that it “expects to produce 2.5 million to 2.7 million gold equivalent ounces at a production cost of sales per gold equivalent ounce of $660 to $720 and an all-in sustaining cost per gold equivalent ounce of $925 to $1,025. Total capital expenditures are forecast to be approximately $900 million (+/- 5%), which includes sustaining capital of $420 million, in line with previous levels, and nonsustaining capital of approximately $455 million to advance development projects, including Tasiast.”

As of the last quarter of 2016, Kinross had $827 million in cash on hand and securities, minus 20.8% from 2015. The decrease was due to the purchase of Bald Mountain and the 50% of Round Mountain, mines in Nevada, due to more funds used as capex even though lower than originally guided and due to the repayment of the current portion of debt in senior notes.

The decrease in cash on hand was not completely counterbalanced by the proceeds that Kinross made during the year for having issued more shares and by the increase in the cash flow from operations.

However, the existence of a line of credit of $1.43 billion brings the total liquidity available to Kinross to $2.26 billion.

Total long-term debt is $1,733.2. The LT Debt to Equity (MRQ) ratio is 41.81, which is slightly above the industry’s ratio of 37.46. The interest coverage ratio (ttm) is -0.48, which may mean that the company is having some problems paying interest expenses on the outstanding debt.

However, if we consider that Kinross’ long-term debt will mature after 2020 and that the miner can rely on a total liquidity of $2.26 billion, the company should have enough funds available to preserve the cash flow generated from operations and therefore sustain the organic growth.

Kinross Gold closed at $3.93 per share Feb. 16, down 2 cents or 0.51% from the previous trading day, with a volume of 12,317,852 shares traded on the New York Stock Exchange versus an average volume of 12.16 million shares traded over the last 10 trading days and an average volume of 13.75 million shares traded over the last three months.

The gold stock is trading at 1.14 times the book value and at 7.57 times the ebitda.

The recommendation rating is 2.9, and it ranges between 1.0 (Strong Buy) and 5.0 (Sell). The analysts’ average target price per share is $4.41, which represents a 12.2% upside from the last share price.

Disclosure: I have no positions in Kinross Gold.

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About the author:

Alberto Abaterusso
Alberto Abaterusso is a freelance writer based in The Netherlands. He primarily writes about gold, silver and precious metals mining stocks. His articles have also been widely linked by popular sites, including MarketWatch, Financial Times, 24hGold, Investopedia, Financial.org, CNBS, MSN Money, Zachs, Reuters and others. Alberto holds a MBA from Università degli Studi di Bari (Italy), Aldo Moro.

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