Kinross Gold: Should We Pay Attention to It in 2017?

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Part 9
Kinross Gold: Should We Pay Attention to It in 2017? PART 9 OF 9

What Could Narrow Kinross Gold’s Valuation Gap?


An EV-to-EBITDA (enterprise value to earnings before interest, tax, depreciation, and amortization) multiple is a good measure for capital-intensive industries. It helps you compare companies with different capital structures.

 What Could Narrow Kinross Gold’s Valuation Gap?

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Valuation multiples

Compared to its peers, Kinross Gold (KGC) is trading at the lowest forward multiple of 4.9x. Historically, it has traded at a discount to its closest peers. As you can see in the above chart, its EBITDA margin estimates are the lowest among its peers at 36.0%, mainly due to its higher unit costs and lower grades. Geopolitical risks and KGC’s unstable production profile are also weighing on investors’ minds.

Goldcorp (GG), Newmont Mining (NEM), Barrick Gold (ABX), and Yamana Gold (AUY) are trading at higher multiples of 11.5x, 9.3x, 7.7x, and 7.0x, respectively.

Valuation gap

Currently, Kinross Gold’s forward EV-to-EBITDA multiple implies a 44.0% discount to its senior peers’ average multiple. The average discount for the last five years is close to 41.0%. As gold prices became more volatile, investors probably hesitated at the company’s exposure to riskier jurisdictions and rewarded companies such as Goldcorp (GG), which had stable production profiles in safe jurisdictions.

However, Kinross Gold’s recent results show that it has been able to cut costs, improve its production profile, and reduce some of its exposure. Although investors might still be concerned about its long-term falling production profile, positive results from its Tasiast expansion studies could act as a positive catalyst and lead to a rerating of the stock. The decision on Phase Two of the Tasiast expansion at the end of 3Q17 could act as a key catalyst for the stock going forward.

If you don’t want to invest in an individual company, you can invest in gold miners through the VanEck Vectors Gold Miners ETF (GDX). GDX invests in senior and intermediate gold miners, and Newmont forms 6.9% of its portfolio. The SPDR Gold Shares ETF (GLD) provides exposure to spot gold prices.


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