| Pair Trade? RBC Upgrades Randgold Resources, Downgrades Kinross Gold | |
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Randgold Resources Ltd. (NASDAQ: GOLD) has outperformed Kinross Gold Corporation (USA) (NYSE: KGC) this year by 26 percent.
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RBC Capital Markets' Stephen Walker and Jonathan Guy have changed ratings on the two companies, suggesting that Randgold's outperformance will continue. Guy upgraded Randgold Resources to Outperform, while Walker downgraded Kinross Gold to Underperform.
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RBC's thesis is the tale of two companies. At Kinross Gold, the production profile is declining and the company may need to make an acquisition to replace reserves. Meanwhile, Randgold may make an acquisition, but approach it from a point of strength with an "ungeared balance sheet and low costs."
RBC Capital Markets was complementary of Randgold Resources' management, noting that the strong Q2 performance were the result of the "strength" in Randgold's business plan. That business plan has the company producing gold at a cost that is in the lowest quartile for the industry, allowing the company to generate positive free cash flow as long as gold prices are above $800 per ounce.
At Kinross Gold, the production profile is declining, and the company will struggle should gold prices slip under $1,000 per ounce. It is at that level that Kinross will start to burn $100 million in annual cash. However, if prices stay above $1,100, the company will be able to fund $300 to $400 million in capital expenditures.
The other interesting dichotomy between the two companies, according to the two research notes, is their approach to acquisitions. Kinross would need to look for an acquisition to "replace reserves," potentially using that $300 to $400 million to fund that.
Conversely, if Randgold's history is any measure, the company will not overpay should it decide to use some capital expenditures on an acquisition. Guy pointed to Randgold's acquisition of AngloGold Ashanti as evidence of management's structured approach. In 2009, the company paid $610 million for AngloGold's Kibali project, while RBC estimates that the project has a net asset value of $2.65 billion at present.
Based on the price target of GBP 4,500, RBC estimated that Randgold could gain 7 percent. Under the downside scenario, the firm said that prices could decline as much as 29 percent. At Kinross, prices could gain 9 percent in the target scenario, while they could decline as much as 28 percent for a downside scenario.
Latest Ratings for KGC
Date | Firm | Action | From | To |
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Aug 2015 | RBC Capital | Downgrades | Sector Perform | Underperform | Jul 2015 | Citigroup | Maintains | | Neutral | Jul 2015 | CIBC | Initiates Coverage on | | Sector Perform |
View More Analyst Ratings for KGC
View the Latest Analyst Ratings
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Kinross Gold Corporation
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PRODUCER |
CODE : K.TO |
ISIN : CA4969024047 |
CUSIP : 496902404 |
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ProfileMarket IndicatorsVALUE : Projects & res.Press releasesAnnual reportRISK : Asset profileContact Cpy |
Kinross Gold is a gold producing company based in Canada. Kinross Gold produces gold, silver in Brazil, in Canada, in Chile, in Ghana, in Mauritania, in Russia and in USA, develops copper, gold and silver in Chile, and holds various exploration projects in Canada, in Chile and in Russia. Its main assets in production are ROUND MOUNTAIN in USA, CRIXÁS, MORRO DO OURO and PARACATU in Brazil, REFUGIO MINE (VERDE AND PANCHO), FORT KNOX, MARICUNGA and LA COIPA in Chile, PORCUPINE and MUSSELWHITE in Canada, CHIRANO in Ghana, TASIAST in Mauritania and KUPOL in Russia, its main assets in development are KETTLE RIVER, GOLD HILL and CERRO CASALE in Chile and its main exploration properties are AHAFO NORTH, BIBIANI NORTH, BOLE, BOLE - BOLGATANGA, AKYEM, RUSSIAN MOUNTAIN, HORN MOUNTAIN, GIL, ENCHI and GOLDBANKS - KINROSS in Ghana, FRUTA DEL NORTE in Ecuador, HAMMOND REEF in Canada, KUBAKA MINE - BIRKACHAN in Russia and LOBO-MARTE in Chile. Kinross Gold is listed in Canada, in Germany and in United States of America. Its market capitalisation is CA$ 11.3 billions as of today (US$ 8.2 billions, € 7.7 billions). Its stock quote reached its lowest recent point on October 27, 2000 at CA$ 1.43, and its highest recent level on December 13, 2002 at CA$ 9.99. Kinross Gold has 1 246 749 952 shares outstanding. |