With a research note dispatched on Nov. 10 – as shown in the chart below – Macquarie Group Ltd. (ASX:MQG, Financial) has upgraded shares of Kinross Gold Corp. (KGC, Financial) from a previous rating of Neutral to an Outperform one.
This was the third upgrade Kinross Gold received over the last 14 months.
Macquarie Group’s upgrade is preceded by the other upgrade ratings: On Sept. 1 the Canadian gold stock was upgraded by Citigroup Inc. (C, Financial) from Sell to Neutral and on May 3 Kinross Gold was upgraded by the Commercial International Bank (CIBEY, Financial) to a rating of Outperform.
Source: Yahoo Finance
Over the same span, shares of the Canadian gold stock were downgraded twice, on Dec. 19 by BMO Capital Markets to Market from a previous rating of Perform and on Dec. 5 Kinross Gold was downgraded by Citigroup to a Sell rating.
On Sept. 7 Joh. Berenberg, Gossler & Co. KG – a financial institution based in Hamburg, Germany and commonly known as Berenberg Bank – started covering shares of Kinross Gold with a Hold rating.
Macquarie Group has also updated its price target on Kinross Gold with a $4.37 per share of the Canadian miner. The previous price target set by Macquarie Group on Kinross Gold was $4.40.
Source: Yahoo Finance
Kinross Gold has an average target price of $5.30 per share. This is a mean of 18 estimates of analysts who were surveyed on the Canadian gold stock’s price target.
These estimates range between a low of $3.75 per share and a high of $7.07 per share.
The recommendation rating on Kinross Gold is currently 2.4 out of a total of 5.
Macquarie Group released its upgrade rating on Kinross Gold two days after the Canadian gold producer beat expectations on earnings and revenue for the third quarter.
The company’s complete operating and financial results for the third quarter can be found in this Kinross Gold news release.
The reason Macquarie Group has upgraded Kinross Gold can be picked up easily: The Canadian gold producer is considerably improving the profitability of its operations. The miner closed a strong third quarter with a solid growth in the gold margin.
When the metric for the third quarter – which is computed as the average realized gold price per ounce of equivalent gold sold minus the attributable production cost of sales per ounce of equivalent gold sold – is compared with that one of the prior-year quarter, it has increased by $21 per ounce of equivalent gold sold. The margin was $621 per ounce in the third quarter of 2017 versus a margin of $600 per ounce in the third quarter of 2016.
The improvement in the margin that is having a positive impact on the company’s bottom line and cash flow is due not only to a rising gold price but also to a higher efficiency the company has been able to achieve at its operations over time.
In fact, for the full fiscal year of 2017 Kinross Gold’s operations are on track to meet a production cost of sales of $660 per ounce of metal sold, which is the lower end of its guidance on costs, on a higher volume of gold production. For the entire year of 2017 the company expects to produce 2.7 million ounces of equivalent gold, and this volume is the high end of the miner’s guidance on production of the yellow metal.
With a gold that according to the analysts is on track to steadily trade above $1,300 per troy ounce during the quarter and with a production cost of sales forecasted at its guidance’s low end, it is highly expected that Kinross Gold will deliver another strong quarter and will beat expectations also on earnings and sales for the last quarter.
For the last quarter and for full fiscal 2017, analysts forecast that Kinross Gold will close with an EPS of 4 cents (backed on revenue of $835.19 million) and an EPS of 13 cents (backed on revenue of $3.31 billion).
At the moment Kinross Gold is also one of the best opportunities in the gold mining industry for the long run.The company can exploit mineral reserves of 31 million ounces of gold at an annual rate of 2.5 million to 2.7 million ounces of equivalent gold for an average mine of life of approximately 12 years. This is one of the highest yearly productions in the whole industry and can be made at an AISC of $952 per ounce. The latter is not one of the lowest in the industry, though, if this non-GAAP measure, which is well-liked by the investors, is compared with that one of Kinross Gold's most direct peers such as Newmont Mining Corp. (NEM, Financial), it is still competitive and the company is becoming step by step more combative on the field having already dragged the AISC per ounce down by more than 6% in one year's time.
GuruFocus assigns Kinross Gold a financial strength rating of 5 out of 10.
Kinross Gold is trading at $4.30 per share with a market capitalization of $5.39 billion, a price-book (P/B) value of 1.29, a price-sales (P/S) of 1.56 and price-earnings (P/E) ratio of 42.54. The EV-EBITDA ratio is 5.16.
The forward PE ratio is 32.79. Kinross Gold has an EVO – enterprise value per ounce of mineral reserve – of $197.74.
Disclosure: I have no position in Kinross Gold.
