S&P: Kinross Gold Corp. Outlook Revised To Positive From Stable Following Revised Gold Price Assumptions; 'BB+' CCR Affirmed
S&P Global Ratings also affirmed its 'BB+' issue-level rating on the company's unsecured notes. The '3' recovery rating on the notes is unchanged and reflects our view of meaningful (50%-70%; high end of the range) recovery in our default scenario, and an issue-level rating that is the same as the long-term corporate credit rating.
"The outlook revision primarily reflects the increase in our estimates of Kinross Gold's earnings, cash flow, and liquidity over the next two years following the upward revision to our gold price assumptions," said S&P Global Ratings credit analyst Jarrett Bilous.
We now expect the company to generate core credit ratios considered strong for the ratings, including adjusted debt-to-EBITDA below 2x and average funds from operations (FFO)-to-debt over 45% through 2017. In addition, the company improved its financial flexibility this year by issuing approximately US$290 million in equity in March 2016, extending the maturity of its revolver and term loan, and generating free cash flow in the first half of the year.
The outlook also incorporates our expectation for volatility in gold prices, which are not far removed from cycle lows at year-end 2015, and risks associated with the capital-intensive Phase 1 expansion of the company's Tasiast mine in Mauritania.
The positive outlook primarily follows the increase in our gold price assumptions, and the increased likelihood that the company will generate and sustain credit measures that are considered strong for the current rating through 2017. We estimate Kinross will generate an adjusted debt-to-EBITDA ratio below 2x area over this period, but account for potential downside to gold prices or higher-than-expected capital expenditures related to growth projects.
We could revise the outlook to stable if we expect Kinross to generate and sustain an adjusted debt-to-EBITDA ratio of above 2x. In this scenario, we would expect the company to realize gold prices below our current assumptions or generate cash costs materially above our estimates, with no change in our view of its business risk profile.
We could upgrade Kinross if we believe the company can maintain an adjusted debt-to-EBITDA well below 2x through 2017. In this scenario, we would expect average gold prices and the company's operating and capital expenditures to remain roughly in line with our assumptions. We would also expect the company's net debt position to improve over this period.