News Column

Fitch Affirms Kinross Gold's IDR at 'BBB-'; Outlook Stable

May 21, 2014

NEW YORK--(BUSINESS WIRE)-- Fitch Ratings has affirmed Kinross Gold Corporation's (NYSE: KGC, TSX: K) Issuer Default Rating (IDR) and senior unsecured debt at 'BBB-'. A complete list of ratings follows at the end of this release.

The Rating Outlook is Stable.

KEY RATING DRIVERS

Kinross' ratings reflect its sizable reserves, average cost position, average geopolitical risk position, and the potential for substantial development spending over the medium term, together with Kinross' commitment to maintain a conservative capital structure given its exposure to gold prices. In weak gold markets, the company has the ability to defer development and exploration and focus on cash preservation.

Kinross operates in the U.S., Russia, Brazil, Chile, Ghana, and Mauritania, which accounted for, respectively, 27%, 21%, 19%, 14%, 10% and 9% of 2013 metals sales. Gold ounces sold has grown at a compound annual growth rate of 2.8% over the past four years. At Dec. 31, 2013, proven and probable gold reserves were 42.8 million oz. calculated at $1,200/oz. and the production weighted average of continuing operations reserve life is 12.9 years. The company reported all-in sustaining cost of $1,063 per ounce of gold for 2013 and $991 per ounce in the first quarter of 2014 (1Q'14), on a by-product basis.

Strong Liquidity

Liquidity at March 31, 2014 was strong, with cash on hand of $704 million and utilization of only $32 million for letters of credit under the company's $1.5 billion revolver due August 2018. The revolver has a maximum net debt to EBITDA covenant of 3.5x. Total debt at March 31, 2014 of $2.1 billion to latest 12 months (LTM) operating EBITDA of $1.2 billion was 1.8x, and net debt to LTM operating EBITDA was 1.2x.

Fitch estimates scheduled maturities of debt as of March 31, 2014 to be $30 million in 2014, $60 million in 2015, $270 million in 2016, $500 million in 2017, and $1.3 billion thereafter.

Liquidity should remain adequate to support Kinross' capital spends which are guided to be $675 million in 2014.

Expectations

Fitch expects Kinross to be free cash flow (FCF) neutral in 2014 based on $1,200/oz. gold. Fitch would expect similar results in 2015 and 2016 with gold prices at $1,200/oz. and continued deferral of the Tasiast mill expansion project. Fitch expects total debt/operating EBITDA at the end of 2014 to be about 2.5x.

Fitch also expects Kinross to remain in compliance with its covenants.

Sensitivity to Gold Prices

In 2013, with average gold price realizations of $1402/oz., pre-tax earnings adjusting for the $3.2 billion impairment charge was $230 million. For 2014, the company estimates that a 10% change in the gold price could have a $300 million impact on pre-tax earnings. Average gold price realizations for 1Q'14 were $1,299/oz.

Tasiast

The final feasibility study on the mill expansion at Tasiast has been completed. The study shows a 17.2% after-tax internal rate of return (IRR) with an initial capital expenditure of $1.6 billion assuming a $1,350/oz. gold price. The company has stated that a final construction decision on the expansion is not expected to be made until 2015 at the earliest. In the interim, the company is working to further enhance project economics and is in discussions with lenders for project finance terms.

The Stable Outlook reflects Fitch's expectation that total debt/operating EBITDA will not exceed 3x when borrowing is at its peak and will generally be less than 2x. Fitch believes that spending for Tasiast will be disciplined. Should internal cash generation fall behind expectations, Fitch expects expenditures to be cut or to be supported by asset sales rather than substantial new debt issuance.

RATING SENSITIVITIES

Negative: Future developments that may, individually or collectively, lead to negative rating action include:

--Gold prices and internally generated cash flow deteriorate without an equal management response in the form of reduced spending, asset sales or the raising of equity;

--Expansion project at Tasiast largely debt funded;

--Expectations that total debt/operating EBITDA will be greater than 3.0x on a sustained basis.

Positive: Not anticipated given potential capital spending plans, but future developments that may lead to a positive rating action include:

--Modest net borrowing and FCF positive on average.

Fitch's affirms Kinross Gold Corporation ratings as follows:

--IDR at 'BBB-';

--Revolving Credit Facility at 'BBB-';

--Senior Unsecured Term Loan due 2017 at 'BBB-';

--$250 million Senior unsecured notes due 2016 at 'BBB-';

--$500 million Senior unsecured notes due 2021 at 'BBB-';

--$500 million Senior unsecured notes due 2024 at 'BBB-';

--$250 million Senior unsecured notes due 2041 at 'BBB-'.

Additional information is available at 'www.fitchratings.com'.

Applicable Criteria & Related Research:

--'Corporate Rating Methodology' (Aug. 2013).

Applicable Criteria and Related Research:

Corporate Rating Methodology: Including Short-Term Ratings and Parent and Subsidiary Linkage

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=715139

Additional Disclosure

Solicitation Status

http://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=831185

ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: HTTP://FITCHRATINGS.COM/UNDERSTANDINGCREDITRATINGS. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'. PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE 'CODE OF CONDUCT' SECTION OF THIS SITE. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE.



Fitch Ratings

Primary Analyst

Monica M. Bonar, +1 212-908-0579

Senior Director

Fitch Ratings, Inc.

33 Whitehall Street

New York, NY 10004

or

Secondary Analyst

Christopher M. Collins, CFA, +1 312-368-3196

Director

or

Committee Chairperson

Sean T. Sexton, CFA, +1 312-368-3130

Managing Director

or

Media Relations:

Brian Bertsch, +1 212-908-0549

brian.bertsch@fitchratings.com

Source: Fitch Ratings


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