Kinross Gold Corporation: Could it Rise Another 100%?

Here’s the scoop on Kinross Gold Corporation (TSX:K)(NYSE:KGC).

| More on:
The Motley Fool

Kinross Gold Corporation (TSX:K)(NYSE:KGC) has more than doubled off its January lows, and investors are wondering if this is the start of a much bigger rally.

Let’s take a look at the beleaguered miner to see if more gains could be on the way.

Years of pain

Long-term Kinross investors have endured some serious pain since the financial crisis.

The company spent US$7.1 billion to Buy Red Back Mining about a year before gold peaked near US$1,900 per ounce. The deal included the highly coveted Tasiast mine in Mauritania, but Tasiast has never lived up to expectations, and Kinross has since written down the majority of the Red Back assets.

As gold plummeted below $1,100, Kinross watched its shares plunge by 90% as it struggled to reduce debt and stay alive until better days returned.

It looks like that moment might have finally come.

Kinross finished 2015 with US$1.04 billion in cash and cash equivalents and long-term debt of US$1.7 billion, so the balance sheet is in much better shape than it has been for years.

The company just spent US$610 million of the cash balance to acquire new assets in Nevada that should help reduce all-in sustaining costs (AISC) and boost production by 430,000 ounces per year.

AISC for all of 2015 came in at US$975 per gold equivalent ounce on total production of 2.6 million ounces.

2016 guidance

Kinross expects production in 2016 to be 2.7-2.9 million ounces at AISC of US$890-990 per ounce. Production costs remain higher than those seen at a number of the company’s peers, especially at the high end of the estimate, but Kinross is making good progress.

Kinross performed well in 2015, hitting production levels near the top of guidance while delivering costs at the lower end of expectations, so management has some momentum behind it as the company moves through 2016.

Tasiast news

Tasiast has not been profitable since the mine was acquired in the Red Back deal, but Kinross is finalizing a two-phased expansion plan that could finally see the company realize some strong returns on the asset.

Phase one would boost mill throughput from 8,000 tonnes per day (t/d) to 12,000 t/d, which would lower AISC to a point where the mine should be profitable in the current environment. Phase two would increase throughput significantly higher and further reduce AISC.

Should you buy Kinross?

The stock was so oversold that any positive movement in the price of gold will continue to drive the shares higher. Whether or not it will double again all depends on where gold is headed in the coming months.

On a longer-term perspective, the balance sheet is now in decent shape, so there is much less risk of the company going bust, and the US$190 per ounce surge in gold thus far in 2016 bodes well for cash flow and the company’s ability to further reduce debt. Operating costs are still high compared to the larger players, but the stock has some big upside potential if gold can maintain or even extend the recent gains.

If you have a contrarian investing style and believe gold has bottomed, Kinross might be worth a shot.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Andrew Walker has no position in any stocks mentioned.

More on Metals and Mining Stocks

Gold bars
Metals and Mining Stocks

Why Alamos Gold Jumped 7% on Wednesday

Alamos (TSX:AGI) stock and Argonaut Gold (TSX:AR) surged after the companies announced a friendly acquisition for $325 million.

Read more »

Nuclear power station cooling tower
Metals and Mining Stocks

If You’d Invested $1,000 in Cameco Stock 5 Years Ago, This Is How Much You’d Have Now

Cameco (TSX:CCO) stock still looks undervalued, despite a 258% rally. Can the uranium miner deliver more capital gains to shareholders?

Read more »

Super sized rock trucks take a load of platinum rich rock into the crusher.
Stocks for Beginners

Cameco Stock and More: 3 TSX Commodity Titans to Watch in 2024

Cameco stock and these others will provide you with growth that goes beyond just a year or two, with all…

Read more »

Handwriting text writing Are You Ready For Tomorrow question. Concept meaning Preparation to the future Motivation Stand blackboard with white words behind blurry blue paper lobs woody floor.
Stocks for Beginners

3 Reasons to Buy Lundin Stock Like There’s No Tomorrow

Lundin stock (TSX:LUN) has been killing its production of copper and plans on blowing its records out of the water…

Read more »

Gold bars
Stocks for Beginners

TSX Materials in March 2024: The Best Stock to Buy Right Now

Materials have been quite volatile, though the price of gold has surged to all-time highs. That makes this stock a…

Read more »

Gold bars
Metals and Mining Stocks

Will Gold Stocks Rally in 2024?

Down almost 30% from all-time highs, Franco-Nevada is a gold mining stock trading at a discount to consensus price target…

Read more »

A miner down a mine shaft
Stocks for Beginners

Canadian Mining Stocks: Buy, Sell or Hold?

Canadian mining stocks have seemed like such a strong investment, but with shares down significantly this year, what should we…

Read more »

Gold king in chess game face with the another silver team on black background (Concept for company strategy, business victory or decision)
Stocks for Beginners

Great News for Gold Stock Investors!

Gold has hit an all-time high! Which is good news for some gold stocks, and really good news for others.

Read more »