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

Fri Jun 7, 2013 7:05pm EDT

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

Fitch Ratings has affirmed the Issuer Default Rating (IDR) of Kinross Gold Corporation ('Kinross'), (NYSE:KGC) (TSE:K) at 'BBB-', along with the senior unsecured debt at Kinross. A complete list of rating actions 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 taken 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 countries accounted for 27%,22%,18%,16%,10% and 7%, respectively, of 2012 consolidated gold equivalent production. At Dec. 31, 2012, proven and probable gold reserves were 59.6 million oz. calculated at $1,200/oz. which compares at 25 times 2012 gold production of 2.4 million ounces. Fitch calculated consolidated cash production cost of gold on a by-product basis at $626/oz. for 2012.

Liquidity at March 31, 2013 was strong, with cash on hand of $1.4 billion and $1.5 billion available, after $34.5 million of letters of credit, under the company's $1.5 billion revolver due August 2017. Covenants under the revolver include maximum net leverage of 3.5x and minimum tangible net worth of $5.73 billion plus 50% of positive net income for each fiscal quarter from and including the fiscal quarter ending Sept. 30, 2012. Total debt to latest 12 months operating EBITDA was 1.1x.

Liquidity should remain adequate to support Kinross' capital spends which are expected to be $1.6 billion in 2013 of which $625 million is for development capital at the Tasiast mine in Mauritania. The company has received the pre-feasibility study to increase production at Tasiast to an estimated 830,000 ounces of gold (production was 185,334 ounces in 2012) for an initial capital of $2.7 billion. Kinross is moving to a final feasibility study before deciding whether to proceed with the expansion. Fitch expects Kinross to be free cash flow negative as much as of $1.1 billion in 2013 and $200 million in 2014 based on $1,200/oz. gold and the timing of spending. Fitch expects Kinross to remain in compliance with its covenants and have sufficient liquidity to support its operations.

Fitch estimates scheduled maturities of debt as of March 31, 2013 to be $31 million for the remainder of 2013, $60 million in 2014, $1.1 billion in 2015, $270 million in 2016 and $750 million thereafter. The bulk of the 2015 maturity represents the term loan.

Kinross' earnings are sensitive to gold prices; for 2013 a 10% decline in gold prices from 2012's average of $1,643/oz. could result in a $380 million decline in pre-tax earnings. A 10% decline in silver prices from the average in 2012 of $30.79/oz. would reduce pre-tax earnings by $20 million.

The Stable Outlook reflects Fitch's expectation that Total debt/EBITDA will not exceed 2x when borrowing is at its peak. 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, cut dividends, asset sales or the raising of equity.

--Expectations that total debt/operating EBITDA will be greater than 3.0x.

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

--Modest net borrowing and free cash flow positive on average.

Fitch has affirmed the following ratings:

Kinross Gold Corporation.

--IDR at 'BBB-';

--Revolving Credit Facility at 'BBB-';

--Senior Unsecured Term Loan due 2015 at 'BBB-';

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

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

--$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. 8, 2012).

Applicable Criteria and Related Research:

Corporate Rating Methodology

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=684460

Additional Disclosure

Solicitation Status

http://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=793203

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Fitch Ratings
Primary Analyst:
Monica M. Bonar, +1-212-908-0579
Senior Director
Fitch Ratings, Inc.
One State Street Plaza
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, New York, +1 212-908-0549
brian.bertsch@fitchratings.com

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