The EV-to-EBITDA (enterprise value to earnings before interest, tax, depreciation, and amortization) multiple is a good measure for capital-intensive industries, as it helps investors compare companies with different capital structures.
In the past, Kinross Gold’s (KGC) valuation multiple has had a wide trading range between 3.1x and 8.8x. This is what investors were willing to pay for the company based on analyst estimates. The company’s multiple reached its highest point when gold prices gained significantly in the aftermath of the global financial crisis. This also led to an expansion in the multiples of other gold companies including Newmont Mining (NEM) and Yamana Gold (AUY).
Currently, Kinross is trading at a forward EV-to-EBITDA multiple of 5.0x, which is the lowest among the senior peers as you can see in the above graph. However, investors should note that its EBITDA margin estimates are also the lowest among the peer group at 40%. This is mainly due to its higher unit costs and lower grades. The company’s unstable production profile and geopolitical risks are also factors weighing on investors’ minds.
While Kinross’s stock has gained significantly since the start of the year due to its higher operational leverage and increasing gold prices, its operational issues keep weighing on its valuation.
The execution of its existing growth projects could lead to a re-rating in the future. A positive pre-feasibility study result for phase two of the Tasiast expansion could be a further re-rating catalyst for the stock price.
Investors who don’t want to pick up individual companies can invest in gold miners through the VanEck Vectors Gold Miners ETF (GDX). This ETF invests in senior and intermediate gold miners. Newmont forms 6.9% of its portfolio. The SPDR Gold Shares ETF (GLD) provides exposure to spot gold prices.