Kinross Gold bets on expansion by Dave Ebner - Tuesday, June 8, 1999
With gold trading at pennies above a 20-year-low, second-tier gold producer Kinross Gold Corp. has been
battered by investors.The company's stock has fallen 25 per cent since the beginning of March, closing yesterday
at $2.56 on the Toronto Stock Exchange. Gold closed at $266.10 ( U.S. ) .But analysts like Kinross, despite
poor immediate prospects. While there are risks, many cite the company's strong management and clear vision as
strengths, suggesting the stock will rebound once bullion recovers."The biggest benefit is you have got a company
that's highly leveraged to the gold price, meaning if the gold price goes up, Kinross is probably going to go up
more than just about any other company," said an analyst who asked not to be named.He rates the stock a "buy,"
but notes the summer is traditionally a slow time for all commodities, including gold."Look for the fall -- that's
typically when commodities tend to wake up," he said. "In all the major commodity cycles, gold has always moved
with them. September historically is the strongest month for gold. So we may see some positive movement in the
price around then. How big? I guess if I really knew that I'd be a fortuneteller."Toronto-based Kinross operates
three major mines: Fort Knox in Alaska, Kubaka in Russia and Hoyle Pond near Timmins, Ont. The company --
North America's fifth-largest gold producer -- mines more than one million ounces of gold a year, including its
smaller operations.
Kinross lost $245.4-million on revenue of $286.6-million in 1998, compared with an $83.7-million loss on
revenue of $183.5-million in 1997. For the three months ended March 31, the company lost $10-million on
revenue of $78.7-million, compared with a $2.2-million profit on revenue of $42.6-million in the same period a
year earlier.The big jump in revenue came after the purchase and integration last year of Amax Gold Inc., an
example of Kinross's solid management, analysts said.
"It's one of the better management groups out there," said Mike Westcott, a Goepel McDermid Securities analyst,
who rates the stock a "buy.""These guys have demonstrated their technical ability to make the best of the assets
they've got. You saw that with the Amax merger, taking over those assets, and in a very short time frame -- six or
eight months -- they essentially improved each one of them with the input of the Kinross technical team."I'd say it's
a top-tier mine management group."Other analysts echo Mr. Westcott's statement."I think the company has a clear
strategy and a clear vision given where it is relative to the size and strength of other companies," said the unnamed
analyst. "It knows the kind of things it can focus on. It's got a very focused strategy of building core positions in
major -- either established or growing -- mining camps."The possible acquisition of a Royal Oak Mines Inc.
property near Timmins and Hoyle Pond is an example of Kinross's approach.Kinross chairman Robert Buchan is
said to have already expressed an interest in Royal Oak's Pamour mine."I would expect if it does pick up Pamour
and other related ground that it would be done at very reasonable costs. Without knowing the acquisition price, it
would seem -- on the surface -- to be a worthwhile risk," said Larry Strauss, a Canaccord Capital analyst.In
addition, Kinross announced June 2 it had signed an agreement with Copper Ridge Explorations Inc. to explore a
gold-rich area near Fairbanks, Alaska, and its Fort Knox mine.Though it is expanding its core assets, Mr. Strauss
rates the stock a "hold," based on a variety of risks, including but not focused on the price of gold."It's got a lot of
risks and a lot of rewards -- potentially," he said.First is the risk of doing business in Russia. Gokhran, the Russian
state precious metals reserve, has said it will buy the Kubaka mine's entire 1999 production, though it has not
made a concrete commitment. Mr. Strauss is wary about Gokhran's ability to come through."Russia is highly
indebted, and you know at some point they may decide that their capital is better spent elsewhere," he said, adding
if Kinross has to export the gold, it will be subject to a 5-per-cent export tax.Hoyle Pond may also be a problem.
Mr. Strauss said there have been difficult mining conditions recently and if they persist, profit could be affected.
And then, of course, there's the price of gold, which Mr. Strauss says has little to do with Britain's recent
announcement to sell half its gold reserves."Our view is the U.K. announcement did not represent a major
fundamental change," he said. "But obviously in the near term the market doesn't trade as much on fundamentals as
it does on sentiments -- and sentiment was shot."Sentiment may be shot, but Chad Williams of TD Securities said
Kinross is still in a "good position," rating the stock a "buy." He projects the company's production growing 40 per
cent in the next few years.In addition, investors have flocked to the big gold companies -- Barrick Gold Corp. and
Placer Dome Inc. -- as gold's price has tumbled, pushing those stocks up and Kinross's down. Now it's a great
deal, Mr. Williams said."Take a look at Kinross," he said. "It's a good alternative in terms of diversifying your
portfolio."In a survey of 14 analysts by Bloomberg News, 10 rate Kinross a "buy," two rate it a "hold" and two
rate it a "sell."Bottom LineKinross is doing most everything right, analysts say, but it is closely tied to gold's
performance and it's difficult to know where the gold price will go.
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