Kinross (:K)(NYSE:KGC) is a major gold mining company based in Canada. It is a company with a rich history. It has long been one of Canada’s leading gold stocks, but today it faces exciting new opportunities.

In the first quarter of 2022, Kinross was at an all-time low. Sales were flat, production was low, and cash flow was negative. Unsurprisingly, Kinross is also seeing its stock price trading at rock bottom. Let’s review the quarter and then I’ll show you how Kinross is a good value game today.

Kinross Gold: Rising Oil Prices and Rising Gold Prices

Kinross faced rising costs in the quarter as well as lower production as seasonality and expected production schedules took their toll. This all came crashing down and led to Kinross’ dismal earnings performance – $0.06 versus $0.08 last year.

The topic of the day for many companies is inflation. In this theme, we have seen that rising oil and gas prices are prime examples. This leads to a dramatic cost increase for most businesses, as energy is usually a significant cost. For Kinross, business results are also affected by these higher costs. In fact, going forward, management has updated their guidelines to reflect this.

Management now incorporates an oil price of $100 into its forecast and a gold price of $1,800 an ounce. This compares to his earlier forecast which assumed $70 oil and $1,500 an ounce of gold. He talks about the rapidly changing environment, but he also talks about opportunity. Rising inflation should eventually lead to a decline in the US, which will lead to another rally in the price of gold. Today, the price of gold is just above $1,850, with many analysts expecting it to rise above $2,000 in the not too distant future.

Cleanup of its asset portfolio During the quarter, Kinross made significant moves. Most notable was the divestment of its Russian assets and the sale of its Chirano mine in Ghana. The sale of the Russian assets alone resulted in an impairment charge of $670 million. So we can see the magnitude of this move, which I think will be worth the pain in the short term in the long run. Because if these sales negatively affect the size of the company, they also positively affect the risk profile of the company.

In addition to these divestitures, Kinross made a very timely acquisition last year. It closed in February 2022. Great Bear Resources was acquired for its flagship Dixie project in Ontario’s Red Lake mining district. This project has been called “one of the most interesting recent gold discoveries in the world”. This is a premier deposit with great exploration potential, and it is located in one of the best jurisdictions: Canada.

Given all of this, Kinross’ production profile will change dramatically. It now derives 70% of its production from the Americas, including its low-cost Chilean operation and its world-class Canadian mine. All things considered, I consider this all to be a good net positive move.

Kinross Gold Stock: Undervalued Today; opportunity tomorrow Gold stocks are trading at average multiples well above those of Kinross. It is not difficult to see why this is the case. I mean, it’s been a time of upheaval and disarray for Kinross. But in the future, things change. Kinross is improving its game while significantly reducing its risk profile. Going forward, I expect the valuation gap between Kinross Gold stock and its peer group of gold stocks to narrow significantly. Simply put, Kinross’ valuation should rise as its outlook improves.

The post office Kinross Gold Stock (TSX:K): Q1/22 earnings results give way to value appeared first on Motley Fool Canada.

Fool contributor Karen Thomas has no position on any of the stocks mentioned. The Motley Fool has no position in the stocks mentioned.

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