Kinross Gold (KGC) enjoys a comfortable financial position after its asset acquisitions. The company had $2.5 billion in liquidity as of September 30, 2015, including $1 billion in cash and $1.5 billion in undrawn credit facilities. Even after paying the acquisition price of $610 million, the company should have $1.9 billion in liquidity.
As we highlighted in Investing in Kinross: The Company’s Overall Position in the Industry, given the company’s solid financial position and declining long-term production profile, it was likely to go for some acquisitions.
In its latest report on Kinross Gold (KGC), Moody’s opined that Kinross’s recent acquisition is credit positive. Moody’s believed that the acquisition would not materially increase Kinross’s debt and that it would also reduce Kinross’s cash flow concentration from its mines in Russia.
Fitch also believes that Kinross has sufficient liquidity to fund the acquisition and the remaining development capex for Bald Mountain. It also expects Bald Mountain to generate free cash flow in the long term. The additional earnings from mines could be used to deleverage following the close of the transaction.
Among Kinross Gold’s peers, Barrick Gold (ABX) and Newmont Mining (NEM) count debt reduction as the top priority to weather the current volatile gold price environment. Goldcorp (GG) still has lower financial leverage compared to its senior gold peers (GDX).
The rationale for Kinross Gold’s acquisition of these assets is clearly the production upside and increasing exposure to a safer jurisdiction. Given that the company has paid a high price for these assets in the current gold price environment, Kinross’s expected upside potential from resource conversion needs to be demonstrated fully to the market before investors gain confidence in the acquisition.