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Could Kinross Gold’s Balance Sheet Support Its Future Growth?

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Liquidity position

Kinross Gold’s (KGC) liquidity position at the end of the fourth quarter of 2018 reflected its strategic investments. Kinross invested a total of ~$665 million in development projects to add value to its portfolio in the year. Its investments included a $254 million power plant acquisition in Brazil, which was cash funded.

The company had cash and cash equivalents of $349 million at the end of the fourth quarter compared to $500 million at the end of the third quarter. Its total liquidity at the end of the fourth quarter was $1.9 billion.

KGC’s liquidity position is also significant given that it doesn’t have any debt maturity until 2021. Its financial position should help it fund its future development opportunities.

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Financially flexible to advance growth projects

KGC’s strong cash flow generation should enable it to pursue these growth opportunities. CFO Tony Giardini mentioned during the company’s fourth-quarter earnings call that with every $100-per-ounce increase in the price of gold (GLD) above its budget assumption of $1,200 per ounce, it would generate ~$200 million of additional cash flow each year.

In the fourth quarter, KGC generated $183.5 million in adjusted operating cash flow. KGC has a forward net debt-to-EBITDA ratio of ~1.2x.

Kinross’s peers (RING) (GDXJ) Barrick Gold (GOLD) and Newmont Mining (NEM) have reduced their debt loads considerably over the past few years. Agnico Eagle Mines (AEM) and Goldcorp (GG) have lower financial leverages than their senior gold mining peers (GDX).

FCF generation

Kinross has been generating negative free cash flow for the last few quarters, mainly due to its higher capex. However, as most of its major capex has now been completed, especially in relation to Tasiast, the company should see accelerated free cash flow from 2019 onward.

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