Fitch Rates Kinross Gold's Proposed Sr. Unsecured Notes 'BBB-'; Outlook
NEW YORK -- February 27, 2014
Fitch Ratings has assigned a 'BBB-'rating to the proposed $350 million
10-year, senior unsecured notes. Net proceeds of the notes are to be used to
repay a portion of the $1 billion term loan due 2017. 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 28%, 21%, 19%, 14%, 9% and 9%, respectively, of 2013
attributable gold equivalent production. Gold production 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 39.7 million oz. calculated at
$1,200/oz. which equates to 16x 2013 gold production of 2.5 million oz. The
company reported all-in sustaining cost of $1,063 per ounce of gold for the
year to date Dec. 31, 2013.
Liquidity at Dec. 31, 2013 was strong, with cash on hand of $735 million and
utilization of only $31.9 million for letters of credit under the company's
$1.5 billion revolver due August 2018. The revolver has a maximum net leverage
of 3.5x. Total debt at Dec. 31, 2013 of $2.1 billion to latest 12 months (LTM)
operating EBITDA of $1.4 billion was 1.6x, and net debt to LTM operating
EBITDA was 1.0x.
Liquidity should remain adequate to support Kinross' capital spends which are
guided to be $675 million in 2014. The final feasibility study on the mill
expansion at Tasiast is expected to be completed in the first quarter of 2014
but no decision on the expansion is expected before 2015 at the earliest.
Fitch expects Kinross to be free cash flow neutral in 2014 based on $1,200/oz.
gold. In 2013, with average gold realizations of $1402/oz., cash flow after
$1.3 billion in capital expenditures and $91 million in dividends was negative
$590.7 million. 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 Dec. 31, 2013, pro forma
for the new notes assuming $350 million repayment of the term loan, to be $60
million in 2014, $60 million in 2015, $270 million in 2016, $650 million in
2017 and $1.1 billion thereafter.
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.
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;
--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 currently rates Kinross Gold Corporation as follows:
--Revolving Credit Facility 'BBB-';
--Senior Unsecured Term Loan due 2017 'BBB-';
--$250 million Senior unsecured notes due 2016 'BBB-';
--$500 million Senior unsecured notes due 2021 'BBB-';
--$250 million Senior unsecured notes due 2041 '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
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Monica M. Bonar
Fitch Ratings, Inc.
One State Street Plaza
New York, NY 10004
Christopher M. Collins, CFA
Sean T. Sexton, CFA
Brian Bertsch, New York, +1 212-908-0549
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