3 days Ago
Thomas Demarczyk/E+ via Getty Images It's been a busy Q3 thus far for the precious metals sector, with two sizeable acquisitions by First Majestic Silver ( AG ) and Gold Fields ( GFI ). Meanwhile, we've seen several economic studies released by developers and producers, highlighting solid project economics even at relatively conservative metals price assumptions. One company that recently released a much-awaited PEA was Kinross Gold Corporation ( NYSE: KGC ) at its Great Bear Project in Canada, and it's also just come off reporting significant margin expansion in H1-24 with likely even stronger H2-24 financial results on deck.
In this update, we'll dig into the company's Q2 24 results , recent developments, and how Kinross' valuation stacks up relative to peers after a year of outperformance. Bald Mountain Mine - Kinross Gold Video, Jeff Dow Photography All figures are in United States Dollars unless otherwise noted. G/T = grams per tonne (of gold or silver).
GEOs = gold-equivalent ounces. AISC refers to all-in sustaining costs. LOMP = life of mine plan.
Q2 Production & Sales Kinross released its Q2-24 results in late July, reporting quarterly production of ~535,300 GEOs, a 4% decline from the year-ago period. The company's lower production was related to a sharp decline in output at Paracatu, its #2 asset by scale, partially offset by higher production from its Nevada mines and a slight increase in output at Tasiast. Fortunately, lower production was more than offset by a record average realized gold price of $2,342/oz.
This allowed Kinross to enjoy a 12% increase in quarterly revenue to ~$1.22 billion, a 14% increase in operating cash flow to ~$604 million, and a marginal increase in adjusted earnings ($174.7 million vs.
$167.6 million or US$0.14 vs.
$0.14 on a per shrae basis). Let's dig into the results a little closer: Kinross Quarterly GEO Production - Company Filings, Author's Chart Starting with Kinross’ largest and highest-margin operation, Tasiast produced ~161,600 ounces vs.
~157,800 ounces on the back of higher throughput related to its 24k Expansion (Q2-24: 2.16 million tonnes processed at 2.7 G/T of gold.
The higher production was despite lapping difficult year-over-year comps from a grade standpoint (Q2-23: 3.25 G/T of gold), and helped to maintain the operation’s solid cost profile $656/oz production cost of sales vs. $652/oz in Q2-23).
That said, we are likely to see a dip in grades and recoveries in 2025/2026 according to the 2019 TR, pointing to higher unit costs at this asset next year. Tasiast Operations - Google Earth Tasiast Grade Profile - 2019 TR Moving over to Paracatu, Kinross saw a 21% decline in production year-over-year, with production cost of sales rising to $1,039/oz vs. $825/oz in the year-ago period.
The lower production was largely due to lapping difficult year-over-year comparisons, with the mine delivering a massive quarter in Q2-23 with ~164,200 ounces produced. Kinross noted that the lower grades in Q2-24 (0.35 G/T of gold vs.
0.42 G/T of gold in Q2-23) were related to the mining sequence and moving through lower-grade portions of the pit. On a positive note, grades are expected to pick up by the end of this year and the asset remains on track to meet guidance of 510,000 ounces with over 258,000 ounces produced year-to-date.
Fort Knox Operations - Company Website Looking at Kinross' Alaska operations, Fort Knox enjoyed slightly higher production year-over-year albeit at higher unit ($1,345/oz vs. $1,146/oz), producing ~69,900 ounces vs. ~69,400 ounces in the year-ago period.
However, we should see a material increase in production to 400,000+ ounces next year with the benefit of higher-grade ore from Manh Choh (70% Kinross owned) which poured its first gold in July and carries much higher grades at 7.9 G/T of gold. As for Kinross' Nevada operations, the company had a better quarter year-over-year with combined production of ~107,700 ounces (Q2-23: ~96,800 ounces) from its Bald Mountain and Round Mountain mines.
Finally, La Coipa may have seen lower production year-over-year at ~65,900 ounces (Q2-23: ~66,700 ounces) on the back of lower throughput and lower silver grades/recoveries. Despite the marginally lower output year-over-year, La Coipa continued to contribute meaningful low-cost ounces and Kinross noted that mill maintenance is underway to work on improving plant reliability. La Coipa Mine - Company Video Costs & Margins Moving over to costs and margins, Kinross reported higher unit costs in Q2-24 on a year-over-year basis, reporting all-in sustaining costs [AISC] of $1,387/oz vs.
$1,296/oz in the year-ago period. The company called out higher contractor and labor costs at Fort Knox (Alaska), with higher royalties. We also saw an impact from fewer ounces sold and higher G&A, partially offset by slightly lower sustaining capital ($116.
5 million vs. $148.6 million), with much lower sustaining spend at La Coipa, Bald Mountain, and Round Mountain.
Fortunately, the higher gold price picked up all the slack to offset the 7% increase in costs, with Kinross' AISC margins jumping 40% to $955/oz (40.8%) vs. $680/oz (34.
4%) in the year-ago period. Kinross Quartterly AISC & AISC Margins - Company Filings, Author's Chart Given the significant improvement in margins and slightly lower attributable capex in the period, free cash flow surged 34% to $345.9 million, up from $258.
3 million in Q2-23. This has helped Kinross to continue paying off debt with $200 million in debt repaid, and its net debt position reduced to ~$1.55 billion, with $480 million in cash and cash equivalents at quarter-end.
Kinross Quarterly Attributable Capex & Free Cash Flow - Company Filings, Author's Chart Recent Developments Eagle Mine Incident & Kinross' Heap-Leach Facilities Given the two tragic heap-leach failures this year, some investors might be a little nervous about owning Kinross' stock with multiple heap-leach operations in its portfolio. However, Kinross stated in its call that is quite confident in the integrity of these assets, as pointed out below. Two benefits include superior topograpy for Bald and Round Mountain with them not built on hill sides or valley fills and the fact that Fort Knox and Bald Mountain are run-of-mine operations, with additional commentary below: We are confident in the quality and safety of our heap leach facilities for a few reasons.
First off, our facilities are primarily run-of-mine heap leach pads, meaning they have larger rocks and crushed heap leach pads, which significantly reduces the risk of liquefaction and increases the structural stability of the pads . The only heap leach we have with crushing is Round Mountain, where we are only crushing a portion of the ore we are placing on the pads. So overall, we still have larger rock sizing and a fully crushed pad.
Second, topography. Both Round and Bald Mountain are built on relatively level ground rather than hillsides or valley fills, increasing their stability . Fort Knox is our only valley-fill heap leach operation.
And again, the two pads there are 100% run-of-mine ore . Finally, it is also worth noting that the embedment of the toe of the valley pads at Fort Knox are designed, engineered, operated and monitored as dams based on state regulation in Alaska, which ensures strong governance on construction and stability. - Kinross Gold Q2-24 Conference Call (emphasis added).
Capital Allocation Moving to capital allocation, Kinross noted that its focus continues to be on its term loan due in March 2025. It further noted that it is not pressured to do any M&A but that it would consider something if it made sense. Given the stock's strong currency and relatively flat production profile looking out to the end of the decade, I certainly wouldn't rule out an acquisition.
However, Kinross has a solid pipeline with optionality in Lobo-Marte, a project that's coming together nicely at Curlew, Round Mountain Phase X looking better with each set of new drill results, and of course, the massive Great Bear Project in Red Lake, Ontario. It could potentially begin commercial production by H2-2030. "I mean we're in great shape with our organic portfolio.
We've got lots of opportunities within our portfolio that we can turn on and we will be looking to further advance studies and economics. So that's one bit of good news. The portfolio itself.
We've got an excellent balance sheet. We're certainly not under any pressure to do anything in that regard. So when we think about M&A, it's really when you use the word opportunistic, it's where could we see value, where can we add value? And again, I would say we have a very strong technical acumen.
We can bring that technical acumen to bear to help turn things around to help improve. We also have an excellent balance sheet. And so we can bring capital to the equation.
So not under any pressure, if something came along that made sense where we thought we could create value for our shareholders, we'd have a look at it." — Kinross Gold Q2-24 Conference Call . Round Mountain Taking a brief look at Round Mountain, Kinross noted that 2.
2 kilometers of development had been completed on its exploration decline and that Phase S remains on plan, with stripping underway and production expected next year. However, the real highlight from the quarter at Round Mountain was an extremely impressive intercept of 32.4 meters at 29.
6 G/T of gold, making it a top-12 intercept drilled in Nevada over the past four years on a gram-meter basis. An animation is shown below in addition to the best intercepts over the past several years in Nevada. This clearly being a very solid intercept outside the main exploration target and well above average grades at Phase X to date.
Kinross had the following to say, which is very encouraging and suggests the potential for this to be a meaningful contributor once fully developed with bulk mining potential: "These results demonstrate the potential for expansion of the primary resource target and are expected to support high productivity bulk mining ." - Kinross Gold, Q2-24 Conference Call (emphasis added). Best Drill Results in Nevada (Gold-Equivalent Grade) - 2021 to Current Round Mountain Phase X - Company Video Great Bear Finally, moving over to the biggest news of Q3, Kinross' released a Preliminary Economic Assessment [PEA] for its Great Bear Project in Ontario, Canada.
The results of this study certainly delivered with the study envisioning an open-pit and underground operation that will run concurrently that could produce ~430,000 ounces per annum on average with production of ~518,000 ounces per annum in its first eight years. Notably, this is expected to be achieved with a very modest throughput and overall footprint of 10,000 tonnes per day, lending to its industry-leading open-pit grades of ~3.0 G/T of gold and average feed grade of 3.
87 G/T of gold (open-pit and underground). Kinross' noted that it chose a modest plant size to avoiding over-sizing the mill for an underground only scenario in the latter portion of the mine life. It also shared that the project is quite straight-forward with a high-grade open-pit at a 6.
7/1.0 strip, clean metallurgy with no deleterious elements based on work to date, and underground mining employing long-hole open stoping with paste backfill and cemented backfill. As it stands, first stope production is expected in 2029 subject to permits, and we saw a slight bump in the overall resource to ~6.
6 million ounces of gold (~42% measured and indicated). However, I ultimately would not be surprised to see this asset grow to 10-13 million ounces of resources and support a 7.5+ million ounce reserve base or 16 years at 460,000+ ounces per annum on average once optimized.
Great Bear Project Mill Throughput & Potential Annual Production Profile - Kinross Gold Website Digging into the economics a little closer, Kinross had initially stated in 2021 at the time of its acquisition that it saw upside to get initial capex under the $1.0 billionfigure, but capex did come in quite a bit higher at ~$1.43 billion ($1,181 million upfront construction capital and $248 million of capitalized mine development).
And even if we apply a 20% increase to initial capex for conservatism as major construction is unlikely to start for at least three years and a 5% increase to estimated capitalized mine development, upfront capex would still come in at ~$1.67 billion. This is a very manageable capex bill for Kinross to cover, with it generating ~$700 million in free cash flow per annum.
This is even using conservative gold price assumptions (~$2,300/oz) and the recent gold price strength helping the company to rapidly de-lever ahead well in advance of major construction. Finally, looking at the Great Bear Project's expected cost profile and IRR, the asset is expected to enjoy industry-leading LOM AISC below $850/oz ($1,000/oz if baking in conservatism given that we're at least six years from commercial production) and a 24% IRR at $1,900/oz gold and an NPV (5%) of $1.9 billion.
If we upgrade the gold price outlook to $2,150/oz to still be conservative but above what's a far too low base case of $1,900/oz gold and bake in additional conservatism on costs and capex, Great Bear's NPV (5%) comes in closer to ~$2.3 billion at $2,150/oz. This is well the above ~$1.
46 billion paid for the asset. However, as highlighted below, we continue to see phenomenal grades at multiple zones outside current resources and at depth, with the deepest hole to date hitting 3.8 meters at 9.
52 G/T of gold. Hence, as noted previously, I would not be surprised to see mine life extension and higher annual production (~460,000? vs. 431,000 ounces) by the time this asset starts production on a post-2028 study with the mine plan optimized and a much larger resource.
Great Bear Drill Highlights - Company Website Finally, it is worth pointing out that Kinross plans to build a state-of-the-art facility with a desulfurization flotation circuit to remove sulfides and render tailings non-acid generating. It also plans to employ in-pit tailings, pulling forward mining at the much smaller Viggo Pit. This certainly contributed to the higher capex, but makes for a lower-risk operation from an environmental standpoint on the territories of the Lac Seul and Wabauskang First Nations partners.
Overall, I was expecting a minimum $2.2 billion NPV (5%) at Great Bear, so this did not make much of a difference in terms of my valuation. Valuation Based on ~1,235 million shares and a share price of US$9.
70, Kinross trades at a market cap of ~$12.0 billion and an enterprise value of ~$13.6 billion.
This continues to leave Kinross in the middle of the pack from an EV/EBITDA multiple standpoint vs. its million-ounce producer peers. It is pricier than those with African exposure that continue to trade at extremely attractive multiples, but a deserved discount to the largest gold producer sector-wide given Kinross' inferior scale and diversification.
And as I noted in my previous update in July, I continue to see B2Gold ( BTG ) as the far more attractive option. It is trading at its lowest multiple in years with a far more supportive sentiment backdrop for higher prices (B2Gold is arguably as hated as Kinross was when it made a major bottom in 2022 ) and trades at less than 5x FY2026 EV/FCF estimates vs. Kinross Gold at over 14x FY2026 EV/FCF estimates currently.
Kinross Gold July 2022 Update - Seeking Alpha PRO Kinross Gold EV/EBITDA Multiple vs. Peers - Koyfin So, what's a fair value for the stock? Using what I believe to be fair multiples of 1.1x P/NAV and 8.
0x FY2025 P/CF estimates and a 65/35 weighting to P/NAV vs. P/CF, I see an updated fair value for Kinross of US$9.60.
This points to zero upside from current levels, suggesting that Kinross is more reliant on higher gold prices than its peers, with it already having re-rated significantly over the past couple of years. Obviously, I could be wrong. The stock could continue to trend higher if the gold price remains above $2,500/oz or continues to melt up.
However, I don't see any way to justify paying up for the stock at current levels. This is especially considering significant relative value opportunities elsewhere. These include B2Gold at just over one-fourth of Kinross' enterprise value with a far better track record of per share growth, a superior growth profile in the 2024-2026 period and the Fekola worries recently being lifted.
Kinross Annual Gold Production Per Share - Company Filings, Author's Chart & Estimates B2Gold Annual Gold Production & Share Count + Gold Production Per Share - Company Filings, Author's Chart & Estimates Kinross vs. B2Gold Estimated Production Profile (2024-2026) - Company FIlings, Author's Chart & Estimates Technical Picture & Summary As for the technical picture, B2Gold and Kinross could not be more dissimilar. In Kinross' case, the stock is tagging its first key resistance level near US$10.
00 after making a major rounded bottom two years ago near US$3.00 per share. Meanwhile, B2Gold is just emerging from a 9-month base and has finally hopped back above its 200-day moving average, suggesting a superior reward/risk outlook for BTG vs.
KGC on both a technical and valuation standpoint. Kinross Gold 2022 Bottom & Buy Rating, Weekly Chart - Worden, Seeking Alpha Premium/PRO BTG Daily Chart - StockCharts.com Kinross has certainly outperformed year-to-date, but it's now become a momentum play, not a value play, which is fine, but it does carry higher-risk.
In my view, I think the far superior setup is momentum and value. This is the case for names like B2Gold today, which is finally back above a rising 200-day moving average and trades at the lowest FY2026 EV/FCF multiple among its million-ounce producer peers. To summarize, I continue to see Kinross Gold Corporation as one of the least attractive ways to put capital to work in the sector today, with its solid operational momentum and improved pipeline already mostly priced into the stock.
Hence, if I were looking to put capital to work in the sector, two ideas that I see as superior setups with would be B2Gold in the mid-cap space and Vox Royalty ( VOXR ) in the smaller cap space. Alluvial Gold Research offers in-depth research on my favorite miners ranked in order to aid in positioning in the most undervalued miners with upcoming catalysts to drive portfolio outperformance. Subscribers also get access to my current portfolios and buy/sell alerts as well as the following: A Proprietary Sentiment Indicator for gold/silver miners updated weekly not available anywhere else Exclusive Research on Top Ideas Top Takeover Targets Buy/Sell Signals for GDX, SIL & Individual Miners I have been able to outperform GDX consistently since its peak (170% return since August 2020 peak) with the help of timing models I've built & rigid stock selection.
Taylor Dart is an individual investor with over 16 years of trading experience, with his primary focus being precious metals developers, producers and royalty/streaming companies. Taylor leads Alluvial Gold Research , where he shares research on precious metals stocks as well as his current portfolio. - Disclosure: I am not a financial advisor.
All articles are my opinion - they are not suggestions to buy or sell any securities. Perform your own due diligence and consult a financial professional before trading or investing. Analyst’s Disclosure: I/we have a beneficial long position in the shares of VOXR, VOXR:CA, BTG, BTO:CA, IAUX, IAU:CA either through stock ownership, options, or other derivatives.
I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.
Disclaimer: Taylor Dart is not a Registered Investment Advisor or Financial Planner. This writing is for informational purposes only. It does not constitute an offer to sell, a solicitation to buy, or a recommendation regarding any securities transaction.
The information contained in this writing should not be construed as financial or investment advice on any subject matter. Taylor Dart expressly disclaims all liability in respect to actions taken based on any or all of the information on this writing. Given the volatility in the precious metals sector, position sizing is critical, so when buying small-cap precious metals stocks, position sizes should be limited to 5% or less of one's portfolio.
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