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Can Kinross Gold Sustain Its Price Momentum after 3Q17 Results?

PART:
1 2 3 4 5 6 7
Part 7
Can Kinross Gold Sustain Its Price Momentum after 3Q17 Results? PART 7 OF 7

Kinross Gold’s Valuation: Watch for These Catalysts

Kinross Gold’s relative valuation

Currently, Kinross Gold (KGC) has a forward EV-to-EBITDA (enterprise value to earnings before interest, tax, depreciation, and amortization) multiple of 4.8x. Its forward multiple has risen ~30% in 2017 year-to-date, mainly due to the company’s strong operational performance and positive project update during the year. That led to a rise in the stock as well as the earnings estimate. However, it still has the lowest multiple among its closest peers (GDX) (SGDM). Historically, KGC stock has traded at a discount to its peer average. Currently, the discount has fallen. While the last five-year average discount for Kinross was 35%, it’s currently trading at a 28% discount.

Kinross Gold’s Valuation: Watch for These Catalysts

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Valuation gap

Kinross has higher costs, and historically, its geographical profile was risky for investors. That probably led the company to trade at a discount compared to its peers. Without the Tasiast Expansion, the company’s maturing mines could mean a decline in its production profile going forward. That was an investor concern for the stock. With the acquisition of assets in Nevada from Barrick Gold (ABX), Kinross Gold eliminated some of those concerns. As the company started diversifying from riskier geographical jurisdictions, the discount started narrowing.

In 2017, KGC also showed impressive progress on its new projects, which further helped allay investor concerns. In September 2017, the decision to go ahead with the Tasiast Phase Two and Round Mountain Phase W expansions seemed to be another step in the right direction.

Kinross Gold’s EBITDA margin is lower than most of its closest peers. Barrick Gold (ABX), Newmont Mining (NEM), and Goldcorp (GG) are trading at higher multiples of 5.8x, 7.8x, and 8.7, respectively.

Kinross Gold’s discount started falling in 2017 when it began demonstrating that it can improve its production growth profile, cut costs, and reduce risk exposure.

A timely and on-budget execution of its latest projects could help narrow its valuation gap further.

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