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

CHICAGO--(BUSINESS WIRE)-- Fitch Ratings has affirmed Kinross Gold Corporation's (NYSE: KGC, TSX: K) Issuer Default Rating (IDR) and senior unsecured debt at 'BBB-'. Roughly $3.5 billion in principal amount of debt and commitments are affected by this action. 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 and strong production of 2.7 million gold equivalent ounces in 2014, average cost position, average geopolitical risk position, and the potential for gradual deleveraging in the next three years as development spending is curtailed in combination 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, Mauritania, Ghana, and Chile, which accounted for 25%, 28%, 19%, 10%, 10% and 9% (rounded), respectively, of 2014 metals production. Gold production has grown at a 2% annual growth rate over the past four years. At Dec. 31, 2014, proven and probable gold reserves were 34.4 million oz. calculated at $1,200/oz. The company reported all-in sustaining cost per ounce of gold sold on a by-product basis of $965 in 2014 and $957 in the first quarter of 2015 (1Q'15) compared to $1,063 for 2013.

Strong Liquidity, Low Leverage

Liquidity at March 31, 2015 was strong, with cash on hand of just over $1 billion and utilization of only $32 million for letters of credit under the company's $1.5 billion revolver due August 2019. Total debt at Dec. 31, 2014 of $2 billion to latest 12 months (LTM) operating EBITDA of $1.1 billion was 1.9x, and net debt to LTM operating EBITDA was 1.0x. Liquidity and cash generation should remain adequate to support Kinross' capital spends, which are guided to be $725 million in 2015.

Fitch estimates scheduled maturities of debt as of March 31, 2015 to be an additional $30 million in 2015, $270 million in 2016, $500 million in 2018, and $1.3 billion thereafter.

Liquidity should remain adequate to support Kinross' capital spends which are guided to be $725 million in 2015.

Concentrated Operations

Kinross has elevated operational concentration, with two mining sites, Paracatu in Brazil and Kupol-Dvoinoye in Russia, making up almost half of 2014 production. The production in Russia is also the company's lowest cost production and produces a sizeable portion of the company's operation cash flow. Though not expected, a disruption in production in either area or increased cash restrictions could have an effect on the company's ability to meet guidance.

Expectations

Fitch expects free cash flow (FCF) to be neutral in 2015 based on $1,200/oz. gold. Fitch would expect similar or slightly positive results in 2016 and 2017 with gold prices at $1,200/oz. and continued deferral of other major expansion projects. Fitch expects total Debt/operating EBITDA at the end of 2015 to be approximately 2.25x, declining further with scheduled maturities, with net debt/operating EBITDA remaining around 1.0x.

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

Sensitivity to Gold Prices

In 2013 and 2014 combined, the company recorded impairment charges of $4.1 billion, net of tax. For 2015, the company estimates that a 10% change in the gold price could have a $300 million impact on pre-tax earnings. Average gold realizations for 1Q'15 were $1,218/oz compared to $1,299/oz in 1Q'14.

The Stable Outlook reflects Fitch's expectation that total debt/EBITDA will not exceed 3x and will generally be at or below 2x. 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.

KEY ASSUMPTIONS

--Realized Gold Prices of $1,200 per oz.;

--Volumes within guidance range;

--Capital expenditures within guidance range;

--Senior notes due 2016 repaid.

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;

--Significant disruption in operations of major operating sites, especially low cost operations in Russia.

Positive: Not anticipated given production guidance and projections, but future developments that may lead to a positive rating action include:

--FCF positive on average.

Fitch affirms Kinross Gold Corporation ratings as follows:

--IDR at 'BBB-';

--Revolving credit facility at 'BBB-';

--Senior unsecured term loan due 2018 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 and Related Research:

--'Corporate Rating Methodology' (May 2014).

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=749393

Additional Disclosure

Solicitation Status

http://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=985140

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View source version on businesswire.com: http://www.businesswire.com/news/home/20150521006202/en/

Fitch Ratings
Primary Analyst
Gregory M. Fodell
Associate Director
+1-312-368-3117
Fitch Ratings, Inc.
70 W. Madison Street
Chicago, IL 60602
or
Secondary Analyst
Monica M. Bonar
Senior Director
+1-212-908-0579
or
Committee Chairperson
Philip Zahn
Senior Director
+1-312-606-2336
or
Media Relations:
Alyssa Castelli, New York, +1 212-908-0540
Email: [email protected]
Elizabeth Fogerty, New York, +1 212-908-0526
Email: [email protected]

Source: Fitch Ratings

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