With the much talked about headwinds faced by the companies in the gold mining sector, the debate continues as to whether investing in a top gold grosser is still a worthwhile idea. Braving the tumultuous macroeconomic environment pressure brought on by the excessively unfavorable conditions building up in the world economy, gold mining stocks have been a subject of widespread speculation.
Kinross Gold Corporation (USA) (NYSE:KGC) is a Canadian gold mining company with operations spread worldwide. The first quarter of 2013 witnessed the company deliver a modest performance, as it produced 648,897 ounces of gold, representing a 10% year-over-year increase from last year. The growth was primarily driven by its Tasiast and Fort Knox mines.
In an effort to remain profitable in such challenging times, the company has initiated a cost reduction plan, which enabled it to reduce its production cost at a competitive $729 per ounce of gold. In addition, during the first quarter, the company achieved a 5% year-over-year increase in revenue from gold sales.
Going forward, to make the right investment choice, it is essential for investors to comprehend the industry trends.
Industry outlook
Driven by aggressive fiscal policies followed by countries such as the United States, Japan, and Europe aimed at improving their respective economies, gold prices soared the previous year.
In addition, the increasing purchases of gold by the central banks from all over the world in an attempt to enhance gold reserves contributed heavily towards rising gold prices. According to the report published by the World Gold Council, the demand for gold in the year 2012 reached an astounding 15%, which is a five-year high.
Moving further, another determinant of the gold mining industry is the risk associated with countries where mines are located. With resource rich nations such as South Africa struggling to cope with political conflicts, mining companies face a huge risk of resource nationalism.
In the wake of turbulent times ahead, the industry players will be seen divesting non-core assets in addition to notching cost cutting initiatives.
Competitive landscape
IAMGOLD Corp (USA) (NYSE:IAG), similar to Kinross Gold Corporation (USA) (NYSE:KGC), has operations spread across three continents. IAMGOLD Corp (USA) (NYSE:IAG) is a fundamentally strong company and holds a fairly dominant position in the global gold mining market. Despite a dominant position, the company could not remain immune from the headwinds faced by the entire industry. This was exhibited by a modest performance from the company during the first quarter of 2013.
Nonetheless, despite a weak quarter, the company has maintained its gold production guidance for financial year 2013, ranging between 875,000 to 950,000 ounces. The company remains optimistic about its guidance for expected gold production through its Mouska stock-piled ore.
With a market capitalization of $ 1.57 billion, the company appears seemingly small relative to its gigantic peers, yet with a balanced operational infrastructure, it certainly has strong potential to emerge as a market leader in the years to come.
Lets examine some key ratios of the company in order to identify if it makes for a worthwhile investment. The company has a current ratio of 3.9, which suggests it has sufficient liquidity to finance its working capital needs for upcoming projects.
Furthermore, it has a trailing twelve months gross operating margin of 41%, which is relatively similar to the industry standard of 48%. With its forward P/E pegged at 6.60, lower than the current P/E of 6.93, the company looks like a sound investment alternative in the medium to longer term.
