RE:RE:RE:RE:RE:RE:Kinross to suspend Russian operations GlobeNewswireMar 2, 20TD Opinion
Event Kinross announced that it is suspending its operations in Russia. We have elected to remove Kinross' Russian assets (the Kupol mine and the Udinsk development project) from our forecasts and our net asset value.
Impact: NEGATIVE Given increasingly harsh sanctions against Russia over its invasion of Ukraine, in our view, it had become more and more difficult for Kinross to maintain its operations in Russia. We believe that management considered all options for the operations, but with gold sales increasingly difficult, given the sanctions, operations have been or are in the process of being suspended at both Kupol and Udinsk.
We believe that further investment in the Udinsk project has become untenable in the medium term and possibly the longer term as well. We had been modelling that Kinross would proceed with development of Udinsk in 2023 with total capital investment of ~$675 million between 2023 and 2025. We no longer include the project in our forecasts.
We have assumed that Kinross will place Kupol on care and maintenance with ongoing costs of ~$5 million per quarter. In exhibits 1-3, we show the impact on our forecasts for Kinross' consolidated production, capex, and FCF profile through 2026 incorporating the suspension of operations at both Kupol and Udinsk.
Our consolidated NAV-5% declines to $5.88/share from $6.91/share (-15%) and our revised EPS, EBITDA, and CFPS estimates are show in the sidebar on this page. Despite the removal of the Russian operations from our forecasts, we expect that Kinross will continue to grow production, albeit modestly, over the next several years.
In addition, following the recently closed acquisition of Great Bear Resources, Kinross' geopolitical risk profile has improved, particularly if the company would no longer have exposure to Russia.
TD Investment Conclusion We are maintaining our BUY recommendation; our target price declines to $7.00 (from $8.50). Our target price continues to be based on heavily discounted target multiples relative to the company's peers; we use a 1.3x NAV-5% target multiple (weighted 60%) and a 5.5x EV/2023E EBITDA target multiple (weighted 40%). We believe that Kinross' Russian assets have already been discounted out of the company's share price.
10 10 9 9 8 8 7 7 6 6 5 5 4 4 May-21 Jul-21 Sep-21 Nov-21 Jan-22 Mar-22 KGC-N: Price Company Profile Kinross Gold is a Canada-based senior gold producer with operating mines in the U.S., Brazil, Chile, West Africa, and Russia. Gold and Precious Minerals - Large-Cap Golds Kinross Gold Corp. (KGC-N, K-T) US$5.45 | C$6.88 Removing Russia from Our Forecasts Greg Barnes Derick Ma, CFA, CPA, CA Recommendation: BUY Risk: HIGH 12-Month Target Price: US$7.00 Prior: US$8.50 12-Month Dividend (Est.):
2023E G