Hi Paul, the metrics of Kinross are very attractive;
Compelling Enterprise Value to EBITDA ratioAttractive Price to Operating Cash Flow ratio
U.S. Steel, Nucor, Kinross Gold upgraded at Deutsche Bank
Jul 6 2016, 18:25 ET | By: Carl Surran, SA News Editor 
The view on steel stocks has become “ less negative” as metals and mining commodity prices rallied ~13% in Q2, Deutsche Bank's Amy Tan says, while still preferring companies with gold exposure.
China's stimulus created a financing window in April, effectively allowing most North American M&M companies to either re-capitalize strained balance sheets or extend near-term debt maturities into future periods, according to Tan.
Citing the improved steel price outlook and balance sheet refinancing, the firm upgraded U.S. Steel (NYSE: X) to Hold from Buy with a $15 price target, raised from $8, and Nucor (NYSE: NUE) to Buy from Hold with a $60 target, up from $52; highly leveraged AK Steel (NYSE: AKS) remains rated Sell.
Tan also upgraded Kinross Gold (NYSE: KGC) to Hold from Sell on valuation, and raised the stock price target for Buy-rated Newmont Mining (NYSE: NEM) to $44 from $38.
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a more cautious view of KGC
however gold and silver are proving to have turbochargers on the price of the actual metal in 2016
Thoughts On My Decision To Exit Kinross Gold
Jun. 24, 2016 8:55 AM ET|6 comments | About: Kinross Gold Corporation (KGC)
Vladimir Zernov Vladimir ZernovFollow(2,329 followers)
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Summary
I exited Kinross Gold in May.
The exit may appear premature.
Analysis of Brexit vote results.
I submitted this article prior to Brexit referendum results. The surprising outcome of the vote changed the situation for gold and gold equities. I don't want to pretend that I had a crystal ball, and I decided to leave the article in its initial shape, but give my new comments in brackets.
A month ago, I wrote about my decision to exit a position in Kinross Gold (NYSE: KGC). Since then, the shares have enjoyed a wild ride - down to $4.17 and up to $5.49 before settling under $5. In this article, I reflect on my decision and lay out my views on Kinross Gold in the light of recent developments.
The cornerstone of my previous thesis was the vision that gold's rush to $1300 was overly speculative. The demand for gold in jewelry and technology shrinks, and investment demand was the sole driver for gold's upside this year.
The massive upside in gold equities looked even more speculative. My thinking was that when dollar weakness ends, the commodity rally will stop and the whole sell dollar/buy commodities trade will unwind.
Initially, the thesis worked well. Gold lost steam and was heading to $1200. Suddenly, the investment world turned its eyes to the increasing possibility of Brexit - and gold quickly rallied from $1200 to $1300, taking Kinross Gold shares closer to previous highs.
Meanwhile, the company itself had some problems at the Tasiast mine. First, a strike commenced on May 24. The strike ended on June 11. Then, the company temporarily suspended mining and processing operations at the mine due to the Mauritanian government's decision to prohibit certain expatriate employees from working at the site due to allegations of invalid work permits. Kinross Gold stated that it did not expect that this issue would affect the development of Tasiast Phase One expansion.
Interestingly, the stock market did not punish Kinross Gold shares on this news. My explanation is that the stock market was fully focused on Brexit referendum and ignored such news. However, once the British vote is over, the focus will return to the problems at Tasiast (This will not be so fast now. Britain's exit from EU is a tectonic shift for Europe. Gold will be very volatile now).
At first glance, the problems don't look that big and similar inconveniences have been experienced by various commodity companies in different parts of the developing world.
Tasiast contributed less than 7% of production to Kinross Gold's first-quarter numbers, so a temporary shut-down will not have a major effect on the company's finances. However, the recent developments are a bit worrying as Kinross Gold has recently decided to proceed with the Tasiast expansion.
So, was my decision to exit Kinross Gold a sound one? I think that the answer is positive despite the fact that Kinross Gold's shares trade at more or less the same levels. As I'm writing this, the outcome of the Brexit referendum is not known, but all polls, forecasts and bets data point to Britain staying with the European Union. In case this materializes in reality, gold will quickly find itself under pressure and may retest $1200 (This time, forecasts got it horribly wrong. Technically, gold can rapidly rise up to $1400 in case it manages to hold above $1300 for a few days. The biggest risk for gold is the strength of the dollar. However, the safe haven status should more or less protect gold in this case).
What can support Kinross Gold's shares in this case? Not much, at least not in the short-term. The company's shares have skyrocketed this year, and there is a big incentive to book some profits at a comfortable level. Despite having cost-leading Russian mines, Kinross Gold is not a cost champion with all-in sustaining costs of $963 per ounce in the first quarter.
There is nothing wrong with this number, but the company must show additional cost progress if it wants it shares to stay at current levels in case of gold price downside.
Tasiast expansion will be the main catalyst for positive changes - increasing production and decreasing costs on the company's most problematic mine.
Given the recently emerged problems, Kinross Gold will have to show its ability to negotiate with the government before the market praises the Tasiast turnaround story once again. The fact that the expatriate issues emerged right after the strike ended is worrisome.
All in all, I remain positive on Kinross Gold in the longer term, but I await bigger correction to re-enter my position. In my view, gold's downside after the British vote together with potential problems at Tasiast could trigger such a correction (Correction is cancelled, at least for the next few days when the market digests the results of Brexit referendum).
On the other side, additional weakness of the dollar might provide support for gold and gold equities. The impact (or lack thereof) of Tasiast difficulties will be evident when the company reports its second-quarter results and holds its conference call on July 28. Until then, I'm most likely on the sidelines.
(I will most likely remain on the sidelines, although I can engage in momentum gold bets. I don't think it's a good idea to establish a longer-term position during such a rally. I will monitor Kinross Gold and other gold equities closely, as they might rally significantly)
Disclosure: I/we have no positions in any stocks mentioned, but may initiate a long position in KGC over the next 72 hours.
I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article. |
