Kinross Gold Corp. ( KGC ) informed the market through a news release published on its Web site June 28 that it is going to issue a $500 million corporate loan made of 4.50% interest-bearing unsecured senior notes with maturity in 2027.
The closing of the company’s notes offering is scheduled by Kinross Gold for July 6.
The Canadian gold producer also informed the market that it will use the proceeds to extinguish a previous $500 million term loan with maturity in August 2020.
This transaction of corporate refinancing is very important to Kinross Gold because the company’s capital structure will be less exposed to the volatility of the gold market and Kinross Gold will have an ampler maneuver for the management of its financial resources.
This transaction of corporate refinancing, through which Kinross Gold practically extends the maturity of its portion of $500 million long-term debt from 2020 to 2027, will produce some benefits for Kinross Gold’s capital structure in terms of homogeneity, flexibility, elasticity and certainty in the payment of interest expense.
- Homogeneity: because this transaction of corporate refinancing will better preserve the availability of Kinross Gold’s cash on hand and securities that are deemed for funding the acquisition of metallic projects or junior exploration companies that are engaged in some robust mineral projects, in order to upgrade the Canadian miner’s assets base.
- Flexibility: because through the extension of the maturity of a portion of the long-term debt – Kinross Gold now doesn’t have debt repayment obligations until 2027 – the company, in theory, should each year allocate a smaller share of the financial resources it generates from operations for future debt extinguishment. This means that, regardless of what gold will do on the market, Kinross Gold will better meet the company’s needs (e.g., funding the development of its metallic projects) thanks to an increased margin of maneuver within the financial resources generated by operations, without affecting the availability of cash on hand.
- Elasticity: because such an operation is intended to increase Kinross Gold’s ability to keep its financial structure’s degree of elasticity stable over time even when mining companies are usually forced to slow down investments because a low gold price would not permit them to maintain sufficient liquidity.
In addition, thanks to this financial transaction, the cost of borrowings – with reference to the long-term debt $500 million of which maturity has been extended from 2020 to 2027 – will acquire economic certainty since the interest previously calculated according to a rate composed by the LIBOR plus 1.95% will now be replaced by an interest expense calculated according to a fixed rate of 4.50%.
Kinross Gold is currently trading at $4.03 per share, down 8 cents or 1.88% from the previous trading day, with a price-book ratio (P/B) ratio of 1.19 and a price-sales (P/S) ratio of 1.42.
The gold stock is down trending on the New York Stock Exchange, but it has gained 29.73% year to date, outperforming by 24.39% the VanEck Vectors Gold Miners ETF ( GDX ) that in the same span has gained 5.34%.