Kinross Gold: Searching For A Support

Summary

• For the second quarter of 2022, revenues were $821.5 million, with a net loss of $40.3 million or $0.03 per diluted share.
• Kinross Gold equivalent produced 557,491 attributable Au eq. Oz. in 2Q22 - including production from Kupol and Chirano (90%) - compared with 538,091 Au eq. Oz. in 2Q21.
• I recommend buying KGC between $3.20 and $3.30 with possible lower support at $2.55.
• Looking for a helping hand in the market? Members of The Gold And Oil Corner get exclusive ideas and guidance to navigate any climate. Learn More »

Oat_Phawat

Part I - Introduction

Toronto-based Kinross Gold Corp. (NYSE:KGC) released its second quarter 2022 results on July 28, 2022.

Note: I have followed KGC quarterly since 2015 with 40 articles and counting. This new article is a quarterly update of my article published on June 21, 2022.

1 - 2Q22 Result Snapshot

For the second quarter of 2022, revenues were $821.5 million, with a net loss of $40.3 million or $0.03 per diluted share. The company now expects to meet the lower end of the guidance.

KGC 2Q22 highlight Presentation (Kinross Gold)

Important Reminder: On June 16, 2022, Kinross Gold completed the sale of 100% of its Russian assets to the Highland Gold Mining group of companies for total cash consideration of $340 million. The Company received $300 million in US dollars in its corporate account and will receive a deferred payment of $40 million after a year of closing. Also, Kinross agreed with Asante Gold Corporation to sell the Company's 90% interest in the Chirano mine in Ghana for total consideration of $225 million in cash and shares on April 25, 2022. The Chirano sale is expected to close in August.

One positive is that Kinross Gold is now an Americas-focused gold miner with only one African asset left, the Tasiast mine in Mauritania.

2022 gold equivalent production has been revised down and is expected to be 2.15 Moz.

KGC Assets presentation (Kinross Gold)

J. Paul Rollinson, President and CEO said in the conference call:

As a company that has met guidance nine out of the last 10 years, I am not happy with our operational results in the first half of this year. Given the challenges we have encountered, we are now targeting production at the low end of our guidance range.

In order to meet the low end of guidance, we will need to produce nearly 400,000 ounces more in the second half than we did in the first.

2 - Stock Performance

Kinross has underperformed the VanEck Vectors Gold Miners ETF (GDX), Barrick Gold (GOLD), Newmont Corp. (NEM), and Agnico Eagle (AEM) on a one-year basis, mainly due to the technical issue at the Tasiast mine and the fire sale of its assets in Russia. KGC is now down 48% on a one-year basis.

Data by YCharts

Part II - Kinross Gold - Financials History 2Q22 - The Raw Numbers

Kinross Gold	2Q21	3Q21	4Q21	1Q22	2Q22
Total Revenues in $ Million	1,000.9	862.5	879.5	768.0	821.5
Net Income in $ Million	119.3	-44.9	-2.70	-523.8	-40.3
EBITDA $ Million	406.5	287.0	234.90	275.7	247.2
EPS Diluted in $/share	0.09	-0.04	-0.01	-0.41	-0.03
Operating Cash Flow in $ Million	388.2	269.9	197.3	196.6	207.9
Capital Expenditure in $ Million	205.4	231.0	298.0	106.3	149.4
Free Cash Flow in $ Million	182.8	38.9	-100.7	90.3	58.5
Total Cash $ Million	675.6	586.1	531.5	454.2	719.1
Long-Term Debt in $ Million	1,427	1,429	1,630	2,729	2,610
Shares Outstanding (diluted) in Million	1,270	1,261	1,255	1,278	1,343
Quarterly Dividend $/share	0.03	0.03	0.03	0.03	0.03

Click to enlarge

Data Source: Company release and Fun Trading.

* Estimated by Fun Trading

Note: Historical data from 2015 are available for subscribers only.

1 - Gold Production Details For The Second Quarter

1.1 Total attributable gold equivalent production

KGC Quarterly GEO production history (Fun Trading)

Kinross Gold equivalent produced 557,491 attributable Au eq. Oz. in 2Q22 - including production from Kupol and Chirano (90%) - compared with 538,091 Au eq. Oz. in 2Q21. Production from continuing operations was 453,978 GEOs this quarter.

Kinross Gold sold 512,431 GEOs in 2Q22.

Note: The Company's Russian and Ghanaian assets have been excluded from its guidance due to the classification of these assets as discontinued as of June 30, 2022.

KGC Quarterly production 2Q21 1Q22 2Q22 (Fun Trading)

As we can see, Tasiast production achieved solid production in 2Q22.

Also, the new La Copia mine in Chile is expected to reach full production capacity in 3Q22 and is now part of the Company's producing assets.

During the 2Q22, La Copia's production during the quarter was lower than expected due to temporary delays in the mill ramp-up, primarily due to issues with the pumps and global supply chain challenges affecting the availability of spare parts. Production increased at Round Mountain and Bald Mountain.

The total producing assets for Kinross Gold will drop by two units starting 3Q22 (after Kupol and Chirano divested).

KGC Quarterly production per mine in 2Q22 (Fun Trading)

The chart below shows that the AISC is now $1,341 per GEO, up sequentially from $1,245 per ounce. AISC is still abnormally high for KGC due to temporary elements such as the La Copia mine ramp-up.

KGC Quarterly gold price and AISC history (Fun Trading)

KGC Tasiast Presentation (Kinross Gold)

1.2 - Important Projects

1.2.1 - Great Bear Project in Red Lake, Canada.

The Company said it had made good progress on the Great Bear project recently acquired.

Kinross has drilled approximately 100,000 metres and is on track to complete 200,000 metres of exploration and infill drilling in 2022 at the LP Fault zone. The 35,000-metre grade control drilling program has now been completed, confirming the Company's view of the high-grade core in the LP Fault zone. The program has improved Kinross' understanding of the continuity and distribution of the high grade intercepts in the LP Fault zone.

1.2.2 - Manh Choh got the green light

The company said in the press release:

The Company announced that it is proceeding with development of the 70%-owned Manh Choh project in Alaska with the completion of the project feasibility study (FS) ahead of schedule. The project is expected to increase Kinross' production profile in Alaska by a total of approximately 640,000 attributable Au eq. oz. over the life of mine at lower costs. Including Manh Choh, the Company expects to produce an average of approximately 400,000 attributable Au eq. oz. per year from 2024 to 2027 from its Alaskan assets.

KGC Manh Choh Project (Kinross Gold)

2 - Kinross Gold: Financial Analysis

2.1 - Revenues were $821.5 million in 2Q22

KGC Quarterly Revenues history (Fun Trading)

KGC posted a loss of $40.3 million or $0.03 per diluted share in the second quarter of 2022 compared to an income of $119.3 million or $0.09 per diluted share in the same quarter last year.

The adjusted net earnings were $37.4 million or $0.03 per share for 2Q22.

Revenues from continuing operations (which doesn't include Russia and Chirano production) in 2Q22 were down 17.9% year-over-year to $821.5 million. However, if we deduct the revenues attached to the two mines indicated above, the 2Q22 revenues were up 16% compared to last year.

2.2 - Free Cash Flow was $58.5 million in 2Q22

KGC Quarterly Free cash flow history (Fun Trading)

Note: Generic free cash flow is the cash from operations minus CapEx.

Trailing 12-month free cash flow is a loss of $98.13 million. The Company had a free cash flow of $58.5 million in 2Q22.

The Company pays a quarterly dividend of $0.03 per share or a yield of 3.52%.

2.3 - Net debt and liquidity - Excellent profile.

The net debt dropped sequentially to $2,610.2 million in 2Q22 but is up significantly compared to 2Q21 after arranging a new $1 billion term loan and closing the Great Bear acquisition.

The Company had cash and cash equivalents of $719.1 million, with total liquidity of approximately $2.18 billion, on June 30, 2022.

KGC Quarterly Cash versus Debt history (Fun Trading)

In the press release:

During the quarter, the Company repaid $120.0 million of debt, including $100.0 million of the outstanding balance on its revolving credit facility. In July 2022, Kinross repaid an additional $100.0 million of the drawn amount from its revolving credit facility.

KGC Liquidity and debt (Kinross Gold)

KGC: Liquidity Presentation (Kinross Gold )

Part III - Technical Analysis & Commentary

KGC TA chart short-term (Fun Trading)

Note: the chart is adjusted for the dividend.

KGC forms a descending triangle pattern with resistance at $3.45 and support at $3.25.

Traditionally, a descending triangle pattern is considered a bearish chart pattern. However, it could also be a bullish pattern if the pattern is viewed as a reversal pattern. If the gold turns bullish after the FED's recent action, we could see a KGC breakout pattern and trade above $4.

Thus, the general strategy has not changed for Kinross Gold. I recommend trading short-term LIFO about 40%-60% and keeping a core long-term position for a final target of $7-$7.50. It is the basic strategy that I promote in my marketplace, "The Gold and Oil corner."

I suggest selling about 40% of your position between $3.4 and $3.9 and buying KGC between $3.20 and $3.30 with possible lower support at $2.55.

Note: The LIFO method is prohibited under International Financial Reporting Standards (IFRS), though it is permitted in the United States by Generally Accepted Accounting Principles (GAAP). Therefore, only US traders can apply this method. Those who cannot trade LIFO can use an alternative by setting two different accounts for the same stock, one for the long-term and one for short-term trading.

Warning: The TA chart must be updated frequently to be relevant. It is what I am doing in my stock tracker. The chart above has a possible validity of about a week. Remember, the TA chart is a tool only to help you adopt the right strategy. It is not a way to foresee the future. No one and nothing can.

Author's note: If you find value in this article and would like to encourage such continued efforts, please click the "Like" button below to vote for support. Thanks.

Analyst’s Disclosure: I/we have a beneficial long position in the shares of KGC 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.

I trade short-term KGC as well.

Comments

[Beartooth]

Wow...I would be drooling over 2.55!

[vc7416]

A side question. 500K+ oz of gold is a lot of gold and I got to wondering what their recovery rate was per ton of material processed. I went looking for an answer, but was unable to find any references. Does anyone know what their recovery rate is/was per ton processed?

[Fun Trading]

@vc7416

I think you can find it in the M&A below per mine.

s2.q4cdn.com/...