Kinross Gold Corporation (KGC) engages in the acquisition, exploration, and development and reclamation of gold properties as well as silver production and sales across a broadly diversified portfolio of assets. These assets are spread across the United States, Russia, Brazil, Chile, Ghana, and Mauritania. As of year-end 2018, its proven and probable mineral reserves included approximately 25.5 million ounces of gold and 53.9 million ounces of silver.

We believe it is one of the most attractive gold mining stocks in the market today due to its recent performance momentum, strong growth outlook, and solid balance sheet.

Earnings Review

At the beginning of August, Kinross reported strong second-quarter results which revealed that the company remains on track to meet 2019 guidance for production, cost of sales, all-in sustaining cost, and capital expenditures. These strong results are largely a product of the company’s operational strength.

Total revenues grew by 8.1% year-over-year and diluted earnings-per-share went from $0.00 to $0.06 from second quarter 2018 to second quarter 2019. The company was free cash flow negative in last year’s first half and is now heavily free cash flow positive. A big part of this growth was the 7.7% year-over-year rise in gold production alongside the rise in precious metals prices.

Additionally, the company’s operational strength continued to fire on all cylinders, highlighted by the company’s three largest operations which combined to generate over 60% of total production in Q2 at an average cost of sales of just $607 per ounce. The Paracatu mine in Brazil achieved its third consecutive quarter of record production and fifth consecutive quarter of lower cost of sales per ounce. The company’s Russian mine at Kupol/Dvoinoye also continued to generate stable and steady production and profit margins. Third, their mine at Tasiast Mauritania saw its third straight quarter of improved costs.

Attractive Growth Potential

Looking ahead, Kinross also has several lucrative expansion opportunities. These include Tasiast Phase Two, their “Americas Development Portfolio” (including Round Mountain Phase W, Bald Mountain Vantage Complex, Fort Knox Gilmore, and La Coipa Restart and Lobo-Marte), and the Russian Chulbatkan development property.

Management seems especially bullish on Tasiast, as they see it making great progress to become a large low-cost mine where they can also increase throughput to above 20,000 tons per day.

Financially, the business also remains on stable footing. Net debt stands at just over $1.4 billion, giving the company a healthy 1.53x net debt to EBITDA ratio. Furthermore, the company enjoys significant liquidity of $1.9 billion, of which $475.4 million is cash and cash equivalents. Having so much cash on hand is good because it enables them to meet capital requirements without immediately having to take on more debt. Furthermore, with no debt maturities until 2021, the company has plenty of short-term flexibility in deploying its capital.

While the company’s long-term growth profile is attractive, especially with surging gold and silver prices, it is important to keep in mind that it also faces fairly substantial geopolitical risk given its international profile. With assets in places like Russia, Brazil, Chile, Ghana, and Mauritania, there are a number of economic or political circumstances that could take place which would result in significant disruption – and losses – for the miner.

Final Thoughts

That being said, the growth runway remains very attractive, recent results show improvements across the core portfolio, and the balance sheet has plenty of liquidity to provide capital where and when needed. If golf remains at current levels or continues to go higher, Kinross Gold is well-positioned to generate considerable free cash flow for investors. However, investors should not let the strong results and solid balance sheet lull them into a false sense of security as this stock possesses significant geopolitical risk.