Kinross plunges ~9%
Kinross Gold (KGC) stock fell 8.7% yesterday in reaction to the fresh US sanctions on entities in Russia (RSX). It was the stock’s largest one-day decline in the last 17 months. On April 6, 2018, the US Treasury Department announced new sanctions on a number of Russian security officials, politicians, and oligarchs believed to have close ties to Russian President Vladimir Putin. A senior official of the US Treasury Department maintained that sanctions were “in response to the totality of the Russian government’s ongoing and increasingly brazen pattern of malign activity around the world.” The broader Russian market and Russian ruble came under heavy selling.
Kinross’s Russian exposure
Kinross Gold got punished mainly because of its exposure to Russia through two of its mines. These mines are expected to contribute ~20% to its production in 2018 with West Africa and the Americas contributing to 20% and 60% of the total production. While the production from Russia constitutes 20% of its total production, reserves from Russia constituted only 8% of Kinross’s total reserves at the end of 2017, as can be seen in the graph above. Kinross’s Kupol and Dvoinoye mines in Russia have high-quality ore and remain important to Kinross’s overall production profile.
Kinross’s punishment continues
While the market has punished Kinross in the past due to its Russian exposure, the past two years had been rather quiet in that context. Kinross has also been trying to diversify away from its reliance on its mines in Russia. In January 2016, Kinross acquired two assets from Barrick Gold (ABX) in the US. This move was largely seen as a step towards diversifying into safer mining jurisdictions. As compared to Kinross, peers (GDX) such as Newmont Mining (NEM), Goldcorp (GG), and Agnico Eagle Mines (AEM) have lower geopolitical risk due to their exposure to safer mining jurisdictions.
The fresh sanctions against Russia are panicking investors. For the most part, however, Kinross should remain unaffected by these sanctions, as there is no material association between Kinross and the sanctioned entities.
In the next part, we’ll see what Kinross has say on this matter and how there could be an opportunity for investors that believe in Kinross’s fundamental value.