Kinross Gold Earnings: Strong Driven by Higher Sales Volumes and Gold Prices

We retain our fair value estimate for no-moat Kinross K of USD 5.20 per share after its strong second-quarter 2023 result. Adjusted net profit after tax was about USD 170 million, or USD 0.14 (CAD 0.19) per share. Adjusted EBITDA of about USD 480 million was roughly double last year and 19% above our estimate, driven by higher sales volumes and average gold prices along with lower unit cash costs. We continue to forecast sales of around 2.1 million gold equivalent ounces, or GEO, in 2023, 9% more than 2022, driven by higher production at Kinross’ Tasiast mine in Mauritania and a full year of production from its La Coipa mine in Chile. Increased production likely partially offsets headwinds from inflation and our forecast unit cash costs of about USD 980 per GEO in 2023, up 4%, is also unchanged. Along with 8% higher assumed gold prices compared with 2022, our forecast EBITDA of about USD 1.6 billion in 2023 is roughly 30% higher than last year.

Despite likely higher near-term production, we forecast Kinross’ attributable sales to reduce to about 1.8 million GEO in 2027, driven by lower production at Tasiast due to declining grades. Tasiast and the Paracatu mine in Brazil account for just over half of our forecast. While these mines are in the lower half of the gold industry cost curve, overall Kinross is in the third quartile, meaning it is more leveraged to changes in gold prices than lower cost competitors such as Newcrest or Agnico Eagle. As such, while we think its net debt of 1.3 times trailing 12 months EBITDA is manageable, pausing the share buyback to reduce debt seems reasonable.

Kinross will pay a USD 0.03 (CAD 0.04) dividend in September consistent with its dividend policy. Our forecast total dividends of USD 0.12 (CAD 0.16) for 2023 represents a yield of about 2.3%. The shares currently trade at roughly a 10% discount to fair value. We think this likely reflects fears global central banks will further raise interest rates, a headwind for gold prices.