Kinross Gold Stock: Looking for support (NYSE: KGC)
Part I – Presentation
Kinross Gold Corp. from Toronto (NYSE: KGC) released its second quarter 2022 results on July 28, 2022.
Note: I have tracked KGC quarterly since 2015 with 40+ articles. This new article is a quarterly update of my article published on June 21, 2022.
1 – Overview of 2Q22 results
For the second quarter of 2022, revenue was $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.
Important reminder: On June 16, 2022, Kinross Gold finalized the sale of 100% of its Russian assets to the Highland Gold Mining group of companies for a total cash consideration of $340 million. The Company received US$300 million in its corporate account and will receive a deferred payment of US$40 million after one year of closing. In addition, Kinross has agreed with Asante Gold Corporation to sell the Company’s 90% interest in the Chirano mine in Ghana for a total consideration of $225 million in cash and stock on April 25, 2022. The sale of Chirano is expected to close in August.
A bright spot is that Kinross Gold is now an Americas-focused gold miner with only one remaining African asset, the Tasiast mine in Mauritania.
Gold equivalent production in 2022 has been revised down to 2.15 Moz.
J. Paul Rollinson, President and CEO, said on the conference call:
As a company that has achieved nine goals over the past 10 years, I am not satisfied with our operating results in the first half of this year. Given the challenges we have encountered, we are now targeting production at the lower end of our guidance range.
In order to reach the bottom of the forecast, we will have to produce nearly 400,000 ounces more in the second half than in the first.
2 – Stock market performance
Kinross underperformed the VanEck Vectors Gold Miners ETF (GDX), Barrick Gold (GOLD), Newmont Corp. (NEM) and Agnico Eagle (AEM) on an annual basis, mainly due to the technical problem at the Tasiast mine and the sale of its assets in Russia. KGC is now down 48% year on year.
Part II – Kinross Gold – 2Q22 Financial History – The Raw Numbers
|Total revenue in millions of dollars||1000.9||862.5||879.5||768.0||821.5|
|Net income in millions of dollars||119.3||-44.9||-2.70||-523.8||-40.3|
|EBITDA in millions of dollars||406.5||287.0||234.90||275.7||247.2|
|Diluted EPS in $/share||0.09||-0.04||-0.01||-0.41||-0.03|
|Cash flow from operations in millions of dollars||388.2||269.9||197.3||196.6||207.9|
|Capital expenditures in millions of dollars||205.4||231.0||298.0||106.3||149.4|
|Free cash flow in millions of dollars||182.8||38.9||-100.7||90.3||58.5|
|Total cash in millions of dollars||675.6||586.1||531.5||454.2||719.1|
|Long-term debt in millions of dollars||1,427||1,429||1,630||2,729||2,610|
|Shares outstanding (diluted) in millions||1,270||1,261||1,255||1,278||1,343|
|Quarterly dividend $/share||0.03||0.03||0.03||0.03||0.03|
The data source: Company press release and Fun Trading.
* Estimated by Fun Trading
Note: Historical data for 2015 is only available to subscribers.
1 – Details of gold production for the second quarter
1.1 Total attributable gold equivalent production
Kinross Gold’s total producing assets will decrease by two units from 3Q22 (following the divestment of Kupol and Chirano).
1.2 – Important projects
1.2.1 – Great Bear Project at Red Lake, Canada.
The Company reported that it has made good progress on the recently acquired Great Bear project.
Kinross has drilled approximately 100,000 meters and is on track to complete 200,000 meters of exploration and fill drilling in 2022 in the LP Fault area. The 35,000 meter grade control drilling program is now complete, confirming the Company’s view of high-grade core in the LP fault zone. The program has improved Kinross’ understanding of the continuity and distribution of high-grade intersections 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 continuing development of the 70%-owned Manh Choh Project in Alaska with the completion of the Feasibility Study (FS) for the project ahead of schedule. The project is expected to increase Kinross’ production profile in Alaska by a total of approximately 640,000 eq. At attributable. oz. over the life of the mine at lower cost. Including Manh Choh, the Company expects to produce an average of approximately 400,000 eq. At attributable. oz. per year from 2024 to 2027 from its assets in Alaska.
2 – Kinross Gold: Financial Analysis
2.1 – Revenue was $821.5 million in 2Q22
Adjusted net income was $37.4 million or $0.03 per share for 2Q22.
Revenue from continuing operations (which does not include Russia and Chirano production) in 2Q22 was down 17.9% year-over-year to $821.5 million. However, if the revenues attached to the two mines indicated above are deducted, 2Q22 revenues are up 16% compared to last year.
2.2 – Free cash flow was $58.5 million in 2Q22
Free cash flow for the last 12 months is a loss of $98.13 million. The Company had 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.
Net debt fell sequentially to $2,610.2 million in 2Q22, but increased significantly from 2Q21 after securing a new $1 billion term loan and closing the acquisition of Great Bear.
The Company had cash and cash equivalents of $719.1 million, with total liquidity of approximately $2.18 billion, as of June 30, 2022.
In the press release:
During the quarter, the Company repaid $120.0 million of debt, including $100.0 million of the outstanding balance of its revolving credit facility. In July 2022, Kinross repaid an additional $100.0 million of the amount drawn on its revolving credit facility.
Part III – Technical Analysis and Commentary
Note: Chart is dividend adjusted.
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 considered a reversal pattern. If gold turns bullish after recent FED action, we could see a KGC breakout and trade above $4.
Thus, the general strategy has not changed for Kinross Gold. I recommend trading the short-term LIFO around 40%-60% and holding a long-term base position for an end goal of $7-$7.50. This is the core strategy I promote in my market, “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 possibly support below $2.55.
To note: The LIFO method is prohibited by International Financial Reporting Standards (IFRS), although 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 up two different accounts for the same security, one for long term and one for short term.
Warning: The TA table must be updated frequently to be relevant. This is what I do in my stock tracker. The table above has a possible validity of approximately one week. Remember that the TA chart is a tool only to help you adopt the right strategy. This is no way to predict the future. Nobody and nothing can.
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