Kinross Gold Corp upgraded to buy at TD

Kinross Gold Corp. was upgraded to purchase from hold at TD Securities because the miner seems to being taking a wise approach with its expansion plan for the Tasiast gold mine in Mauritania.

Analyst Greg Barnes also raised his price target on the stock to US$4.50 from US$3.50 after Kinross released recent results for its Phase 1 and Phase 2 expansion studies.

He noted that Kinross is managing both project and balance sheet risk via a phased approach, whilst optimizing this large, high-grade gold deposit.

“The bottom line for all of us is that the status quo at Tasiast wasn’t economic at current gold prices, and therefore implementing Phase 1 alone must have an optimistic impact on Kinross,” he told clients.

While Kinross isn’t likely to make a decision on Phase 2 until the end of 2017, Barnes thinks it will proceed. Also, he anticipates that the company will seek some project financing for Phase 2.

However, because of the company’s US$700 million cash balance and total liquidity of US$2.2 billion, the analyst believes Kinross can self-fund both phases completely using its money on hand and operating cash flow.

Based on a gold price of US$1,150 per ounce, he estimates Kinross will be able to keep its cash balance near US$700 million throughout the development period and maintain its current debt level.

“We do not see funding as a risk,” Barnes said, noting the sharp decline in capital costs for projects (to US$920 million from the 2014 estimate of US$1.6 billion) results in a better risk profile for that Tasiast expansion.

The mining sector’s downturn has reduced the price of equipment, steel along with other inputs, while management pointed out that creating a two-phase project cost less than the usual single large project.