TD Securities Upgrades Kinross Gold

The Canadian firm raised its rating from buy to action list buy

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TD Securities upgraded Kinross Gold Corp. (KGC, Financial) from buy to action list buy. This is the second upgrade in the last 12 months.

During this period, the Canadian miner also received two downgrades, and Citigroup and Berenberg started coverage.

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TD Securities' upgrade follows the Canadian Imperial Bank of Commerce's rating last December. At that time, the bank upgraded Kinross to sector outperform from sector perform.

According to the Financial Post, TD Securities analyst Greg Barnes believes several of the miner's projects, particularly the development of the Tasiast mine in Mauritania, the extension of the life of the Round Mountain mine, doubling production at Bald Mountain in Nevada and expanding the Ft. Knox mine in Alaska, are the key catalysts for the next six to 12 months.

The new rating is based on Kinross' solid balance sheet and an asset base that can guarantee production of 2.3 million to 2.5 million ounces of gold every year.

Concerning its valuation, the analyst believes Kinross Gold is a buy opportunity today since the stock has an EV/Ebitda ratio for 2018 of five times, which is 3.3 times lower than its peers’ average.

Kinross Gold, however, can be compared to its peers based on other valuation metrics. One metric is gold prices assumed as a base for the determination of the company’s mineral reserves, the price at which the company can mine gold from its reserves at a profit.

Kinross defined its proven and probable mineral reserves of 31 million ounces of equivalent based on a gold price of $1,200 per ounce, a silver price of $17 per ounce and a copper price of $2.40 per pound. One of its peers, Barrick Gold Corp. (ABX, Financial), has defined its reserves at the lowest prices in the mining industry. Barrick estimated its gold reserves at a price of $1,000 per ounce and its copper reserves at a price of $2.25 per pound. Newmont Mining Corp. (NEM, Financial) estimated its gold and copper reserves using a gold price of $1,200 per ounce and a copper price of $2.50 per pound.

Goldcorp Inc. (GG, Financial) estimated its reserves using gold at $1,200 per ounce, silver at $18 per ounce and copper at $2.75 per pound.

Many investors also consider the all-in sustaining costs per ounce of gold when screening for gold mining stocks. Lower AISCs generate the highest profit as gold prices rise. Kinross Gold guides for 2017 an AISC between $925 and $1,025 per ounce of gold. Barrick has the lowest AISC per ounce of gold in the mining industry, ranging between $720 and $770. Newmont expects its AISC to range between $940 and $1,000 per ounce of gold while Goldcorp’s AISC for 2017 ranges between $807.5 and $892.5 per ounce.

In addition, investors also look at another metric: the EVO (enterprise value divided by total ounces of gold reserves), which is the value the stock market gives each company's proven and probable reserves on an ounce-to-ounce basis.

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As seen in the chart above, Kinross Gold is currently the cheapest gold stock compared to its peers using this valuation metric. It is possible, however, that other gold stocks are selling their reserves at a lower price on the market.

Kinross Gold is trading at $4.06 per share with a price-sales (P/S) ratio of 1.53 and a price-book (P/B) ratio of 1.22. The forward price-earnings (P/E) ratio is 37.05, and the EV-EBITDA ratio is 5.72. The gold stock is uptrending again following a decline that started in mid-April and has gained 26.05% year to date.

On average, analysts see an 8.6% upside in the market value of Kinross Gold. They set an average target price of $4.43 per share. The recommendation rating is 2.8 out of five. The recommendation rating ranges between 1.0 (Strong Buy) and 5.0 (Sell).

Disclosure: I have no positions in any stock mentioned in this article.

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