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Friday, June 1, 2012

Is Kinross Gold (KGC) a Bargain?

Kinross Gold has been getting crushed since early September of 2011, dropping over $10 a share since that time.

Some of that is from the plunge in gold prices, but more specific to the company is the negative response to the low-grade envelope surrounding the gold at its Tasiast mine.

Kinross took a writedown of $2.49 billion in its latest quarter, partially in reference to the mine, which has put a lot of downward pressure on the share price of the company. There were other reasons for the writedown, but that was a part of the equation.

What's interesting about this is the fact that the amount of gold reserves at the mine have been confirmed to be approximately 20 million ounces. That's far above the estimated 8 million ounces believed to be in the mine at the time Tastiast was acquired by Kinross.

It appears the challenges of accessing the major gold reserves is one that can be overcome, and once it is, it should put Kinross in an enviable position.

Other than time, the major challenge will be how the company can access the gold reserves and reasonable costs.

Once that's accomplished, the company is strongly positioned for some significant growth into the future.

It seems this problem should be able to be taken care of, and assuming gold will at minimum retain its price (it could even drop significantly lower), Kinross is positioned for some long-term growth, which should result in the share price rebounding over time.

There continue to be many questions concerning Europe and the strength of the euro against the U.S. dollar, but there is almost sure to be more quantitative easing, and when that happens, gold prices are sure to go up.

But even if price remain level or drop several hundred more dollars an ounce, the size of reserves held by Kinross bodes well for the company.

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