Written by Brian Paradza, CFA at The Motley Fool Canada
Kinross Gold’s (TSX:K) stock has returned 30% in total investment returns so far this year. Investors in the TSX gold mining stock are riding a promising growth wave, as Kinross’s productivity and financial position improve on the back of firmer gold prices. Despite its recent rally, new investors can scoop the gold stock for around $7 a share today and still profit.
Following a painful “fire sale” of low-cost Russian assets in 2022 due to unfavourable geopolitical events linked to the Ukraine conflict, Kinross Gold is an $8.5 billion low-cost gold mining stock with a growing production footprint. The miner is banking strong cash flows in 2023, as it pays down debt to fortify its balance sheet, and its shareholders are smiling this year.
Why has Kinross Gold stock outperformed the market so far this year?
Kinross Gold stock’s 28% year-to-date price gain is far ahead of the TSX’s 4.4% rise so far this year.
Despite a slow start to the year, Kinross Gold’s second-quarter production increased by 22% year over year to 555,036 gold equivalent ounces. The company recently completed mine expansion activities at a key asset in Mauritania. Productivity levels improved at three key low-cost mines, which contributed 70% of corporate quarterly production during the quarter, and firmer gold prices helped Kinross Gold to double-digit free cash flow growth.
Kinross Gold is on track to meet its 2023 production guidance for 2.1 million ounces of gold at all-in sustaining costs (AISC) of US$1,320 per ounce. With international gold prices up more than 5.8% year to date, gold miners are racking in huge profits and pocketing good amounts of free cash flow, and Kinross Gold should do better as gold prices linger close to US$2,000 an ounce this quarter.
Supported by its low-cost production assets, Kinross Gold is generating strong free cash flow in 2023, reducing debt, and fortifying its balance sheet.
Kinross Gold stock may sustain positive momentum into 2024
Firm gold prices during the third and fourth quarters of 2023 could see Kinross Gold’s leverage ratios fall significantly by the end of the year. Its shares trade cheaply at a price-to-tangible book value multiple of 0.8 — far below an industry average multiple of 7.2. The gold stock has room for further valuation growth.
Accounting costs may grow during the back half of 2023, as the company’s heap leach accounting recognizes higher inventory costs (before they recede in 2024); however, Kinross Gold’s cash flows will remain intact in 2024.
Although the company’s management doesn’t fully agree with a credit rating agency’s model input of gold price as low as US$1,400 an ounce, the company responded by suspending share repurchases and committing to debt repayments following a credit rating outlook downgrade from stable to negative in June. Management’s action could be favourable to investors in 2024.
The rating outlook downgrade may be revised upwards (back to stable) during a periodic review in 2024. Favourable ratings from credit rating agencies basically speak to lower investment risks, and upgrades should be favourable to the miner’s stock price.
Most noteworthy, just last month, Kinross Gold renewed its share-repurchase program, which authorizes it to buy back up to 10% of its outstanding common shares. The company had repurchased about 8% of its shares outstanding since 2021 before it paused stock repurchases following the credit rating outlook change noted above. It is possible that management may resume share repurchases during the next 12 months to augment shareholder returns.
Kinross Gold stock pays a regular quarterly dividend that yields 2.3% annually.
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