Gold miners across the sector are enjoying higher prices for the precious metal. Although prices have backed down from their previous high at $1,545.90 per ounce in early September, gold is still trading near $1,450 per ounce. With this being well above what gold miners have historically been used to, major gold producers across the sector have seen a big increase in their profit margins.
Thus gold stocks have skyrocketed so far in 2019. One of these companies is Kinross Gold (KGC -1.01%), a Toronto-based senior miner with a $6.07 billion market cap. Over the past six months, its shares have risen by 43%, roughly in line with other major producers. In comparison, the VanEck Gold Miners ETF (GDX) has risen by just 24.1% over the same period. However, shares of Kinross Gold recently took a dive, giving back around 15.3% of its market cap within a week.
Investors should stop and consider whether there's anything meaningful behind this decline and if this marks a substantial buying opportunity from a value perspective.
Image source: Getty Images.
Looking into the fundamentals
Kinross Gold reported its Q2 2019 financial results back in July, showing positive signs across the board. Quarterly output had risen by 7% year over year, rising from 602,049 ounces in 2018 to 648,251 ounces. Operating earnings had gone up by 312% from last year while its net cash from operating activities had increased by 181%. With production costs decreasing as well, down 6.3% percent, all these figures had exceeded investor expectations.
With Kinross Gold now seeming to be on track to exceed its full-year guidance according to these recent figures, the previously gloomy picture surrounding the company appears to have changed significantly. This is a big shift in comparison to the past couple of years, in which Kinross reported negative revenue growth in most of its quarters. Since Q3 2017 there have been only two quarters -- including Q2 2019 -- that have featured any revenue growth at all.
Here's Kinross Gold's trailing 12-month revenue over the past two years as well as its corresponding change in year-over-year quarterly growth.
| Metric | Q3 2017 | Q4 2017 | Q1 2018 | Q2 2018 | Q3 2018 | Q4 2018 | Q1 2019 | Q2 2019 |
|---|---|---|---|---|---|---|---|---|
| Revenue (trailing 12 months) | $3.40B | $3.30B | $3.40B | $3.31B | $3.24B | $3.21B | $3.10B | $3.17B |
| YoY quarterly growth | (9%) | (10.3%) | 12.7% | (10.8%) | (8.9%) | (2.8%) | (12.4%) | 8.1% |
Data source: Macrotrends.
While this quarter's results might paint a rosy picture of Kinross Gold, the past couple of years have seen the company struggle from a revenue standpoint, only recently returning to its 2017 levels. To be fair, however, other gold miners have seen similar declines in revenue over the past two years before staging major comebacks. Barrick Gold (GOLD -0.81%) is one example.
Operational details
Almost 60% of Kinross Gold's output comes from three main facilities, the Paracatu mine in Brazil, the Kupol/Dvoinoye mine in Russia, and its Tasiast mine in Mauritania. The Brazilian Paracatu facility has reported its third consecutive quarter of record output, while the Kupol/Dvoinoye facility remains Kinross' next-best-performing mine. The company has announced it intends to invest an additional $300 million in its Tasiast mine. Kinross estimates that the Tasiast facility will be complete by the end of 2019.
All-in sustaining costs (AISC) for Kinross Gold, a crucial metric for determining how profitable a mining operation is, came in at $925 per ounce of gold, 7% below its 2019 guidance of $995 per ounce. This figure is roughly in line with those of other major gold producers. Barrick Gold edges out Kinross in this regard, with an AISC of just $825 per ounce, while the world's largest gold producer, Newmont Goldcorp (NEM -0.68%), has an AISC of $975 per ounce.
The last operation detail I want to mention is that Kinross recently announced the acquisition of the Chilbatkan gold project in Russia. At just over $283 million, 60% in stock and 40% in cash, the purchase comes after Kinross spent over 16 months evaluating the project's potential. In short, the company believes Chilbatkan could produce 1.8 million ounces of gold over six years at a remarkably low all-in sustaining cost of just $550 per ounce. Even if investors assume this estimate is overly optimistic, an AISC of $600 or even $650 would make Chilbatkan a significant low-cost gold-producing project. This is a development that investors should look forward to.
Should investors buy Kinross Gold?
Taking everything I've mentioned already into account, Kinross seems to have undergone a significant transformation since 2016 and 2017. The Canadian gold miner saw its credit rating cut down to junk status in 2016 before regaining its former rating a couple of years later. Now the company seems to be on a similar footing to giants like Newmont-Goldcorp and Barrick Gold, with many key metrics such as ASIC seeming comparable.
With high gold prices giving the company a much-needed boost, prospects for the gold miner seem strong at the moment. While I'm not sure I would recommend Kinross Gold as my top senior gold mining stock, with Barrick Gold and Newmont-Goldcorp seeming like stronger investments to me, I think there's a potential opportunity to be had in this recent stock price dip if you're itching to add another gold company to your portfolio. As long as gold prices remain high, which it seems they will for a while, Kinross Gold appears to be a good long-term buy.
