As gold powered its way from $1,350 to the $1,600 level in late 2019 and early 2020, mining-sector assets like Kinross Gold (NYSE:KGC) stock performed well.
Kinross promises to “[create] value through responsible mining,” and that’s precisely the business model I look for in a resource-sector company.
Drilling Down on a Mining Standout
Because there’s risk involved when owning mining shares, I apply a number of filters before recommending any stock in this space. In other words, I’m not just going to hope that a company rides on the coattails of higher gold prices … which are not guaranteed, by the way.
Kinross has what some miners lack, and what could be considered the lifeblood of a company in any market sector: a strong cash balance. As of the end of 2019, Kinross possessed $2 billion in available liquidity, which is much more than you could say for some of the lesser competitors.
In the fourth quarter of last year, the company generated $996.2 million in revenues along with $387.6 million in adjusted operating cash flow, with only $298.2 million in capital expenditures. That reflects a healthy balance sheet. I also like the fact that Kinross has repaid more than $1 billion in debt over the past eight years.
Additionally, I like to look at a gold-mining company’s all-in sustaining cost per ounce of gold — the lower, the better. For Kinross it’s estimated at $995 for last year and $970 for 2020, so they’re essentially mining gold at a significant discount to the current spot-gold price.
Forecasting an Outstanding Year
Any worthy addition to my resource-sector portfolio allocation should have ambitious expectations when it comes to exploration and development activity. Kinross certainly checks that box as the company has a 2020 objective of 2.4 million gold-equivalent ounces.
I touched upon all-in sustaining costs, and Kinross’s guidance predicts costs of just $970 per ounce of gold, which would be quite impressive. Moreover, the company is expecting $900 million in capital expenditures this year, an improvement to the already-reasonable estimate of $1.05 billion from 2019.
Kinross owns a number of productive gold mines throughout the Americas, but the one that impresses me the most is the Paracatu project, which the company bills as “the largest gold mine in Brazil and one of the largest in the world.” The life of this mine extends all the way out to 2032, and last year Paractu produced an astounding 619,563 gold-equivalent ounces.
The company also has 100% ownership of several mines in the United States, including the Fort Knox open-pit mine near Fairbanks, Alaska (200,263 gold-equivalent ounces in 2019), Round Mountain in Nevada (361,664 gold-equivalent ounces last year) and Bald Mountain (187,961 gold-equivalent ounces in 2019), which is also located in mineral-rich Nevada.
The Final Word on KGC Stock
Gold might go up or down in the coming months, but a great company like Kinross Gold is worth a second look, even if the spot-gold price chops around. With such productive fully owned mines, a strongly positive cash flow and relatively low all-in sustaining costs, Kinross — the gold standard of resource companies — easily garners an “A” rating from me.
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Source: Investor Place