Revealed: Canada’s Best Gold Stock in 2020!

Kinross Gold Corporation is trading at less than its intrinsic value. Buy shares for your TFSA or RRSP today!

| More on:
Gold bars

Image source: Getty Images

Kinross (TSX:K)(NYSE:KGC) is engaged in gold mining and related activities, including exploration and acquisition of gold-bearing properties, extraction and processing of gold-containing ore and reclamation of gold mining properties.

Kinross’ production and exploration is carried out principally in Canada, the United States, Russia, Brazil Chile, Ghana and Mauritania. Kinross reports a market capitalization of $7.4 billion, with a 52-week low of $4.04 and a 52-week high of $7.24.

Intrinsic price

Based on my calculations, using a precedent transaction model, I determined that Kinross has an intrinsic value of $14.33 per share. The precedent transaction model was created with data on the acquisitions of Goldcorp, Randgold and Detour Gold.

At the current share price of $5.90, I believe Kinross is significantly undervalued. Investors willing to assume a bit more risk and are looking to add a gold producer to their RRSP or TFSA should consider buying shares of Kinross.

Kinross has an implied enterprise value of $18 billion, which represents the theoretical price a buyer would pay for all of Kinross’s outstanding shares plus its debt. This includes a 3% median premium that buyers have been paying for target companies in the gold industry.

Financial highlights

For the nine months ended September 30, 2019, the company reports a poor, but improving balance sheet with negative retained earnings of US$10.35 billion, up from negative US$10.55 billion as at December 31, 2018.

This is not ideal for investors as it suggests the company has more years of cumulative net loss than net income.

Given shareholders’ equity of US$4.8 billion, goodwill of US$159 million and nil intangibles, the company reports tangible net worth of US$4.6 billion. This is a good sign as tangible net worth refers to the real value of a company.

Total revenues are up slightly to US$2.5 billion, from US$2.4 billion the prior year (+3%) complemented by more efficient production (9% reduction in COGS year over year) for pre-tax income of US$357 million, up from US$116 million in 2018 (+209%).

From a cash flow perspective, the company reports operating cash flows (net income plus DD&A) of US$717 million, up from US$591 million in 2018.

Management takes a proactive approach to debt management, as evidenced by a US$200 million repayment of debt, up from an US$80 million repayment in 2018. This is offset by the issuance and debt of US$300 million in 2019, up from US$80 million in 2018.

The company’s acquisition spending slowed down during 2019 to US$30 million, from US$289 million in 2018. Despite this, capital expenditure spending is up to US$807 million, from US$770 million, indicating that the company is investing in itself.

Foolish takeaway

Investors looking to buy shares of a gold producer should consider buying shares of Kinross. Despite its negative retained earnings, it reports increasing revenues and has an adept management team keen on reducing its debt and growing the business.

Using a precedent transaction model, I determined Kinross’s intrinsic value to be $14.33, which represents a steep premium to the $5.90 at which it is currently trading.

While I commend Kinross on increasing its operational efficiency, as suggested by the decrease in COGS year-over-year, I would like to see management be a bit more selective about how it spends money in order to reduce the substantial negative retained earnings.

Overall, TFSA and RRSP investors that are willing to take on a bit more risk will be generously rewarded by investing in Kinross.

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 Chen Liu has no position in any of the 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 »