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Kinross Gold’s Geopolitical Concerns Are Scaring Away the Bulls

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Analyst recommendations for Kinross Gold

Of the analysts covering Kinross Gold (KGC), 42% have recommended a “buy,” and 58% have recommended a “hold.”

Ratings for the stock haven’t changed much in recent months. Its target price of $4.60 suggests a potential upside of 57.6% based on its current market price.

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YTD underperformance

Kinross Gold has underperformed its peers YTD (year-to-date), returning -31.9% as of September 24. The VanEck Vectors Gold Miners ETF (GDX) has returned -19.1%, and the SPDR Gold Trust (GLD), which tracks gold’s physical price, has returned -8.2%. Geopolitical concerns have kept the pressure on KGC in 2018.

Geopolitical concerns overwhelm Kinross Gold

Kinross Gold’s second-quarter results were in line, but its lower revenues due to lower production disappointed investors. Its costs were also higher than expected. It announced a temporary halt to expansion work at its Tasiast Phase Two mine in Mauritania following a request from the government to talk about improving the country’s economic benefits from KGC’s activities.

The second phase was expected to boost daily processing to 30,000 tons per day. Investors hope for a speedy process of negotiations since its main project is not only to replace its maturing production but also for future production growth. It’s also expected to have lower unit costs than the company’s overall operations, thus impacting its unit costs favorably.

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In April, when the United States imposed fresh sanctions on Russia, the stock plunged. Kinross Gold was punished mainly because of its exposure to Russia through two of its mines. Despite the company’s earnings beat in the first quarter, the stock came under pressure in May. Its application for the conversion of its Tasiast Sud exploration permit into an exploration permit was rejected again on May 8 by the government of Mauritania, which stated its desire to enter into mutually beneficial discussions.

Kinross Gold has also been trying to diversify its exposure to politically stable jurisdictions. In January 2016, it acquired two assets in the United States from Barrick Gold (ABX). The move was largely seen as a step toward diversifying into safer mining jurisdictions. Compared to Kinross Gold, (GDX) Newmont Mining (NEM), Goldcorp (GG), and Agnico Eagle Mines (AEM) have lower geopolitical risks due to their exposure to safer mining jurisdictions.

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