Trumped: Kinross Gold Corporation Shares Blasted On Fresh Russian Sanctions

Benjamin A. Smith

Unfortunately for Kinross Gold Corporation (TSE:K) (NYSE:KGC) (FRA: KIN2), the company has inadvertently entered the Trumpcano. It’s something no public company—especially one subject to always-present geographical risk—wishes to enter. We look at what this means for one of Canada’s biggest and most recognizable gold producers.

The catalyst for the carnage which sees Kinross Gold down ↓9.33%, or $0.47 to $4.57 (as of this writing) are fresh Russian sanctions enacted by U.S. president Donald Trump. The news is actually an extension of Friday’s announcement that the Treasury Department was sanctioning seven Russian oligarchs and associated businesses, as well as 17 Russian government officials. The move is designed to scare away Western investment in the Russian Federation, which is problematic because approximately 20% of Kinross’ production in 2018 will come from Russia.

Upon review of the Treasury’s decision, nothing seems to materially associate Kinross Gold to the sanctioned entities. The one Russian oligarch linked to Kinross Gold in the past—Chelsea Football Club owner Roman Abramovich—is absent from the new sanctions list.

Although enhanced U.S. Treasury sanctions mainly avoided mining companies directly—save for Russian aluminum giant Rusal—there was at least one important gold link in the mix.

The U.S, Treasury Department designated Suleiman Kerimov for being an official of the Government of the Russian Federation. Dedicated gold bugs might remember it was Kerimov who purchased a 37% stake in Polyus Gold (later changed to Polyus) in 2009, and later upgraded that stake to 57% in 2015. Polyus is Russia’s largest gold producer and enacted expansion plans which could make it the fourth largest global producer by 2020.

While historical ties between Polyus and Kinross Gold exist within the past decade, evidence of recent collaboration remains scant. Given the deep intertwining present in the mining sector, perhaps some off-the-radar dealings exist. But if they do, they aren’t a matter of public record.

Curiously, Rio Tinto Plc is higher by ↑2.00%, or $1.01 to $51.56 share as analysts expect Rio will benefit by replacing aluminum supply abrogated by Rusal. The majority-owned holding company of Rusal with ties to Oleg Deripaska—designated a “Russian oligarch” on Friday by the U.S. Treasury Department—issued a statement saying that “it is highly likely” that the sanctions’ impact “may be materially adverse to the business and prospects of the group.”

As of yet, I am not aware of any gold company benefiting from a potential supply disruption stemming from Polyus-Kerimov nexus, although production may not be impacted and kept internally anyway.

Whether the market is fearful of additional sanctions will eventually ensnare Abramovich, or whether other entanglements are at play is unclear. But general uncertainty has caught Kinross Gold shares in a downdraft, as it nears some important technical levels.

Investors will be anxious to see whether follow-selling carries prices to multi-year lows, or whether cooler heads will prevail. Either way, the chart is setting up for an interesting battle between bulls and bears as the stakes remain high.

Benjamin A. Smith

Benjamin A. Smith

Ben is a research analyst and capital markets professional with nearly 20 years of experience. His areas of expertise are broad-based, and include extensive knowledge of macro economics, stock/derivative trading, commodity complexes, cryptocurrencies and technical/quant analysis. He also maintains an particular affinity for U.S. politics and the macro-regulatory environment facing...
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