Many moons ago we were big fans of Kinross Gold Corporation (KGC) and it formed one of the largest elements of our portfolio of gold producing stocks. However, on 31st January 2008 we reduced our exposure to this stock when we sold about 50% of our holding for an average price of $21.96 locking in a profit of about 93.60%. In our view the profit was worth taking and we were left with a stake in Kinross Gold which cost us virtually nothing.
We continued to follow the fortunes of this stock until Thursday, November 11, 2010, when we sold our remaining stake in Kinross Gold today for $18.69, commenting that “Our patience has come to an end so we must bid farewell to the Kinross Gold Corporation, today we sold all of our shares taking the cash back to the side lines where we hope to deploy it in such a manner as to enjoy a good return on it.”
Since our exit we have been following Kinross Gold with a keen eye for a new entry point hoping to snap up a bargain buy in this US$11 billion company. However, with a backcloth of a lackluster performance of the HUI, the Gold Bugs Index, this stock can hardly be expected to make terrific capital gains. On the other hand the losses are truly gut wrenching when we see this stock trading today at $9.51.
One of the reasons for their demise could be poor management, but, with one of the industries most respected professionals at the helm in Tye Burt, President and Chief Executive Officer of Kinross since March 2005, we believe that they are in good hands.
We next took at look at their reserves and as the chart below indicates they have added resources to their portfolio at amazing speed having increased them by a whooping 221% since 2005.
As with many other mining companies they have been paying a dividend, although an US$0.11 payout in 2011 is not going to catch the attention of the average retail investor.
The problem, in our very humble opinion is one of trying to become too big, too fast. We all remember the aggressive approach they adopted when on the acquisitions trail, devouring such companies as Red Back Mining Incorporated, as an example. These moves are bold to say the least, but once again it takes time to re-structure and digest any new acquisition, which in turn requires a certain amount of patience of behalf on the investors. We certainly didn’t posses such patience hence our disposal of their stock.
Taking a quick look at the chart we can see that the 50dma has crossed over the 200dma in a downward swing, sometimes referred to as the 'cross of death' as it can have a real negative impact on the stock, which appears to be the case here.
Finally, the question we must ask ourselves is can our capital be better deployed elsewhere?
And the short answer is yes, we'll continue to observe for now but keep our wallet tightly closed as this stock is not one for our core holdings, just yet.
In the short term we draw your attention to something that Rick Rule said in a recent interview “trading options in Kinross is as much as you can have without taking your clothes off” so if your are good enough, nimble enough and can stomach the volatility of a white knuckle ride, then maybe a few well thought options trades are the way to play this stock in the near term.
Kinross Gold trades on the TSX under the symbol of 'K' and on the NYSE under the symbol of KGC and has a market capitalization of US$10.82 billion, the 52 week trading is range is $9.11 - $18.25, and an EPS of -$1.83, which is hardly thrilling. Take care with this one.
Gold by 31%,
Silver by 41%,
S&P by 42%
HUI by 53%.
Our model portfolio is up 445.53% since inception
A success rate of 90.72%
An annualized return of 91.38%
Average return per trade of 36.17%
97 completed trades, 88 closed at a profit
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