In a series of recent articles we investigated the country risk of various mining jurisdictions in which US-listed precious metal miners are active. We collated country risk ratings for these countries from eight different sources and averaged these ratings into compounded country risk scores. The most recent results from this work can be found in this article. Most definitions of country risk include factors such as political risk, exchange rate risk, economic risk, sovereign risk, transfer risk, socio-economic risk and others. Depending on the source, various contributing factors of country risk are weighted differently. Readers interested in the specific definitions are encouraged to follow the links to our sources given in this article. We used our compounded country risk score to evaluate country risk exposure for selected gold and silver mining companies using 2011 production results and reserve statements. As 2012 data becomes available we are providing updates and in the present article we would like to do so for Kinross Gold (KGC).
Kinross Gold has a market capitalization of $6.3B, putting the company among the top ten gold mining companies worldwide. The forward P/E is currently listed at 6.79 following the recent dramatic drop in gold and share price. Analysts on Yahoo.com give a median price target of $10.85, close to twice the share price of $5.50 at the time of writing. In 2012 Kinross Gold produced a total of 2.65M gold-equivalent ounces across 9 mines in 6 countries. For this article only precious metals were considered. For the computation of gold equivalent ounces we used a silver-to-gold ratio of 50. The table below gives the 2012 numbers for production, reserves and resources at each of Kinross Gold's mines and projects. The table entry for "discontinued" is owing to Kinross Gold's 50% interest in the Crixas mine which has been divested. This small portion of overall production was ignored for subsequent computations.
Consolidating the production and reserve data showing summations for each country of exposure results in the table below. The data is already calculated in percentages of gold-equivalent ounces. Country risk ratings as documented here are also shown in the central column of the table. Country risk ratings range from 0 to 100 with low numbers indicating low risk and high numbers indicating high risk. The right side of the table shows the weighted risk contributions for each country separately for production, reserves and resources with summarized scores in the bottom line. The individual ratings can be interpreted as ratings going from present risk (production) into the future (inferred resource).
The country risk rating for Kinross Gold based on production computes to 37.13 slightly down from last year's rating of 38.11. This rating indicates elevated risk levels comparable with country risk carried by Eldorado Gold (EGO).
The risk rating increases sharply to 41.75 when looking at gold reserves mainly due to contributions from the Frutta del Norte project in Ecuador. Country risk exposure rises further when considering resources which is again driven by the Frutta del Norte mine and also by the Tasiast mine in Mauretania. Using measured and indicated resources the risk rating computes to 43.96 and using inferred resources the risk rating computes to 41.68.
Risk levels are noticeably lower for the 2012 data when compared to last year as shown in the diagram below. Notwithstanding this decrease from last year, Kinross Gold still carries significant country risk. We would like to emphasize that high risk often also means high potential rewards for investors familiar and comfortable with a given risk level.
Note: last year's statistics did not differentiate between different resource classes.