Gold has firmed once again as uncertainty regarding the health of the global economy grows once again. The yellow metal has soared to over US$1,511 an ounce to be up by 18% since the start of 2019.
There are signs that gold will firm further and could break through US$1,600 per ounce before the end of 2020. If that occurs, it will be a boon for gold miners, with beaten-down Kinross Gold (TSX:K)(NYSE:KGC) poised to deliver further value for investors after gaining 42% since the start of 2019.
Improved outlook
Kinross operates a globally diverse portfolio of gold mines in North America, Brazil, Russia and West Africa. It has proven and probable gold reserves of 25.5 million ounces as well as measured and indicated gold resources of almost 28 million ounces.
Even after reporting a disappointing third quarter 2019 in which Kinross missed on revenue and earnings, it’s on track to meet its full-year guidance, including annual production of 2.5 million gold ounces and all-in sustaining costs of US$995 per ounce sold.
Kinross has a solid pipeline of projects under development, including the Tasiast mine in Mauritania, which on completion is expected to lift the operation’s production to 563,000 gold ounces annually with industry low AISCs of US$560 per ounce.
The miner announced in mid-December that it had secured a US$300 million loan for the project, which is expected to extend the mine’s life until 2033, providing Kinross with a long-life, low-cost operational asset.
Notably, Kinross possesses considerable financial flexibility, ending the third quarter with US$1.8 billion in liquidity and US$358 million in accessible cash and equivalents.
The miner also finished the period with US$1.9 billion in long-term debt and leases, less than two times projected 2019 operating cash flow, meaning that it’s quite manageable, particularly amid an operating environment where gold is rising in value.
Kinross has no debt maturities until September 2021, giving it ample time to benefit from higher gold and amass the required funds to meet its near-term financial obligations.
Since the end of the third quarter, Kinross has completed two asset sales, selling its remaining shares in Lundin Gold for $150 million and a US$74 million deal for the divestment of a royalty portfolio to Maverix Metals.
That has seen the miner raise around US$139 million in cash, which it intends to use to strengthen its balance sheet and fund projects under development.
There’s every indication that gold will firm during 2020. However, considerable uncertainty still surrounds the global economic outlook and geopolitical risk remains high.
Coupled with fears of an economic downturn, this makes it imperative for investors to weather-proof their portfolios.
The best way to do this is by adding gold to your portfolio because it’s perceived to be the ultimate safe-haven asset, which performs strongly during times of economic and political turmoil.
Foolish takeaway
Kinross is an attractively valued gold miner that’s finally starting to unlock value for shareholders.
It’s attractively valued after making solid gains during 2019, with further upside to be driven by higher gold and improvements to its operations, making now the time to buy Kinross.
