Kinross Gold (KGC) Outlook Lowered to Negative by S&P; Competitive Position Viewed as Weakening

Standard & Poor's Ratings Services said it revised its outlook on Kinross Gold Corp. (NYSE: KGC) to negative from stable. At the same time, Standard & Poor's affirmed its 'BBB-' long-term corporate credit and issue-level ratings on the company.

"We base our outlook revision primarily on the weakening in the company's competitive position, and the potential that Kinross' operating diversity and growth prospects could decline in the next two years," said Standard & Poor's credit analyst Jarrett Bilous.

We expect Kinross will generate a greater than previously expected share of earnings and cash flow from its Russian operations, likely beyond 50% over the next two years. In our view, a higher geographic concentration of operating results increases the company's sensitivity to potential production disruptions or country-specific risks -- particularly when compared with more diversified investment-grade gold mining peers. In addition, certain of its most profitable mines are nearing the end of production over the next three-to-five years, which reduces the company's prospects for medium-term growth. While Kinross has mines with long-dated reserve lives, their cash cost profile is currently above the company's consolidated average. As a result, we believe that further weakening in the company's competitive position would lead to a lower business risk assessment and corresponding downgrade of the company, even if Kinross' financial risk profile remains "intermediate."

We revised our country risk assessment to "moderately high" from "intermediate" to reflect the higher share of Kinross' earnings derived from Russia. However, this revision does not affect our ratings on the company. In addition, we do not cap the Kinross rating at our long-term foreign currency sovereign rating on Russia (BB+/Negative/A-3) as per our criteria. In our view, the company would not default on its debt obligations in the event of a Russian sovereign default given its strong liquidity position and modest debt maturities until 2018.

The negative outlook on Kinross reflects the potential that weakening in its competitive position could lead to a lower business risk assessment and corresponding downgrade of the company.

We could lower the ratings if the company's competitive position weakens, which we believe could result from reduced diversity of earnings and cash flow owing to reserve depletion and an increasing reliance on key assets, weak prospects to increase output, and lower gold margins relative to peer companies, all of which could pressure the company's prospective returns. We could also lower the rating if Kinross' adjusted debt-to-EBITDA exceeds 3x on a sustained basis, which we believe could occur from weaker earnings amid lower gold prices or output, or increased debt to fund growth.

We could revise the outlook back to stable in the event Kinross preserves its competitive position, while maintaining adjusted debt-to-EBITDA below 3x. Stronger gold margins from lower-than-expected cash costs, greater operating breadth, and improving growth prospects, notably from reserve replenishment, could stabilize our view of Kinross' competitive position.

You May Also Be Interested In

• Goldman Sachs on Meta Platforms Inc. (META): 'We expect investors to have an initial negative reaction'
• Alerus Financial Corporation (ALRS) Reports In-Line Q1 EPS
• CVB Financial (CVBF) Tops Q1 EPS by 1c