Kinross Gold Corporation Is Winning Big Off Barrick Gold Corp.’s Troubles

Kinross Gold Corporation (TSX:K)(NYSE:KGC) solves one of its major issues by taking advantage of struggling peer Barrick Gold Corp. (TSX:ABX)(NYSE:ABX).

| More on:
The Motley Fool

Since the beginning of the year, Barrick Gold Corp. (TSX:ABX)(NYSE:ABX) has announced asset sales worth $3.2 billion, outpacing its debt reduction target of $3 billion for the year. In total, these moves have reduced its debt by a whopping 24% in less than 12 months.

While this looks like a positive for Barrick, it wasn’t a proactive choice. Over the past decade, the company loaded up its balance sheet by forcing overpriced acquisitions and incurring massive cost overruns at many of its mines. In August, Barrick had its credit rating downgraded by Moody’s Corporation, meaning that a dramatic cut in debt was necessary for the company to continue having access to the credit markets.

Forced selling typically doesn’t happen at the most opportunistic prices for sellers. Not only do they have little bargaining power, but the sales often occur at industry troughs when prices are lowest. This means that Barrick’s troubles could be another company’s gain. This time around, Kinross Gold Corporation (TSX:K)(NYSE:KGC) looks to be the winner.

A win-win

On November 12, Barrick agreed to sell various non-core assets in Nevada to Kinross for $610 million. The assets included its Bald Mountain mine and a 50% stake in its Round Mountain project. Kinross had previously owned the other 50% stake in Round Mountain, so this sale will give it full ownership and control.

It appears as if the sale could make both companies winners. Barrick was able to offload non-core projects at a fair price and retained its most profitable and longest-life mines. Kinross, meanwhile, was able to consolidate its portfolio and will be able to extract more value out of the projects than Barrick could.

Kinross solves its biggest headwind

Kinross had been expected to experience declining production over the next five years. It desperately needed to boost output, but there were few projects that were complementary to its existing pipeline. In this latest deal, it was able to secure production from geographies that it knows well and already operates in. The acquisition will add approximately 430,000 ounces of annual gold production over the first three years and will lower Kinross’s cost profile.

Plus, Kinross could easily afford to take on these additional assets as it had over $1 billion in cash on hand and lower levels of debt than most of its peers. The deal will involve taking on zero additional debt, and because both mines are already producing free cash flow, Kinross should be able to increase its financial strength even more in coming years.

What’s next for Kinross?

In one move, Kinross was able to put its excess capital to work and grow its production profile, all while maintaining its financial strength. Closing at $2.30 a share, the stock is down around 50% from its highs on the year. While investors won’t experience any meaningful rebound until gold prices rise, Kinross looks like one of the better-balanced options in the mining space.

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 Ryan Vanzo 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 »