Kinross Gold: The Impressive Operational Performance Continues (TSX:K:CA)

Bjoern Wylezich/iStock via Getty Images Overview Kinross Gold (NYSE:KGC) is a large gold mining company that is guiding for a gold equivalent production of 2.1Moz in 2024, which is roughly in-line with what the company has produced over the last couple of years. I have covered Kinross a couple of times per year since 2022 and the prior articles on the company can be found here. Figure 1 – Source: Annual ReportsThe company has much of its production coming from North and South America nowadays, but a substantial amount of earnings and cash flows still comes from the low-cost Tasiast mine in Mauritania. Overall, it is a relatively well-diversified gold mining company. Figure 2 – Source: Kinross PresentationThe stock price of Kinross is this year up 41%, outperforming the VanEck Gold Miners ETF (GDX) by a decent margin, and most peers. The strong gold price has naturally been a tailwind for the company, but the strong operational performance has also been a significant factor. The company delivered a good Q1 result. Figure 3 – Source: KoyfinOperations Figure 4 – Source: Kinross Quarterly ReportsIn the above chart, we can see the gold equivalent production and costs on a consolidated level over the last couple of years for Kinross. The production volume has increased slightly compared to a couple of years ago and main contributing factor to the production increase, is the ramp up of La Coipa in Chile. The all-in sustaining cost (“AISC”) has also been relatively flat lately, which is better than many peers. La Coipa did in the most recent quarter have a gold equivalent production of 71Koz together with a very competitive production cost of $733/oz. That is up from effectively no production in Q1 2022. So, it is fair to say La Coipa has been a very welcomed addition to Kinross’ portfolio of producing assets. Figure 5 – Source: Kinross Quarterly Reports Figure 6 – Source: Kinross Quarterly ReportsWith that said, Paracatu in Brazil and Tasiast in Maurtania are the two largest and most important producing assets for Kinross. The Q1 2024 gold equivalent production for the two assets were 128Koz for Paracatu and 159Koz for Tasiast. The production cost was $1,059/oz for Paracatu in Q1 and costs costs will be slightly elevated for Paracatu during 2024 due to planned mine sequencing, but the cost should come back down in 2025. The production cost was $660/oz at Tasiast, which has both the highest production volume and lowest production cost among the assets, so it accounts for a disproportionate percentage of the consolidated earnings and cash flows. The three remaining producing assets in the U.S. are slightly smaller and the production costs are also higher. However, they have, like most assets of Kinross performed reasonably well lately. The production costs have decreased some at Round Mountain and Bald Mountain over the last couple of quarters. Figure 7 – Source: Kinross Quarterly ReportsProduction was lower in the most recent quarter at Fort Know and the production cost has ticked up slightly over the last couple of quarters. However, the processing plant will see a substantial boost to the production volume when the ore from the Manh Choh project starts to get processed at Fort Know, which is on track for first production in early Q3 2024. This will be a welcomed near-term catalyst for Kinross. There is also a resource update and a preliminary economic assessment (“PEA”) due to be released on Great Bear during the second half of 2024. While we can likely expect Great Bear to continue to grow for some time due to the ongoing drilling, the PEA will provide some more accurate initial estimates on what Great Bear can be valued at. Peer Comparison In the chart below, we can see the forward-looking Price to Earnings and EV to EBITDA ratios over the last few years. A couple of years ago, the valuation multiples were much cheaper for Kinross, both on an absolute level, but also compared to peers. Figure 8 – Source: KoyfinThe valuation multiples for Kinross are now more in the middle of the range. Some of the companies in the chart below have more jurisdictional risk, which probably justifies a lower valuation. Alamos Gold (AGI) and Agnico Eagle (AEM) have slightly higher valuation multiples, which is also makes sense given the lower operating costs and less jurisdictional risk. So, that Kinross today is somewhere in the middle of the ranges, seems fair. With that said, Kinross still has slightly more financial leverage than most of its peers, even if the company has deleveraged some over the last couple of years. So, there is more balance sheet risk with Kinross than most of the peers, but the absolute level of financial leverage isn’t at an alarming level. Figure 9 – Source: KoyfinConclusion Kinross has some high-quality assets, which have performed very well lately, so the management team has done great job. The company also has an interesting near-term catalyst with the Manh Choh project and the potential of Great Bear makes Kinross a very interesting long-term investment as well. Figure 10 – Source: Kinross Presentation With that said, the stock price performance of Kinross has been strong and the company feels relatively fairly valued at this point. So, I am neutral on the stock here. I last bought Kinross in mid-2022, when the stock was really out of favor. I am today more focused on emerging producers and developers, where some high-quality companies are still trading at more depressed levels.

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