By Jack Adamo, Insiders Plus

Gold may not tarnish, but gold stocks do. In fact, it seems they tarnish more than most stocks when they have problems.

Kinross Gold (KGC) is one such company. Between 2002 and 2008, the stock soared nine-fold, matching its peers in the industry, but since then it has fallen more than 60%.

It has had a couple of bad quarters recently that call into question management's ability to get the job done. In the latest boondoggle, Kinross recorded a $2.94 billion "non-cash" charge for the company's Tasiast project in Mauritania, leading to a loss for the year.

On the flip side, however, on an operational basis, 2011 was the best performance in the company's history. Despite its stumbles, it produced 2.6 million gold-equivalent ounces, growing revenue 31% to $3.94 billion.

Furthermore, in the face of rising costs for fuel (substantial in mining), cash margins grew 32% to $906 per ounce sold. "Cash," in this instance, means excluding corporate costs. It's a legitimate measure, though it's the bottom line that counts in the end.

Given these results, it seems to me that Kinross simply bit off more than it could chew with some of its recent acquisitions.

It's cranking out a lot of gold in some places, but blowing it in others. That conclusion aligns with the company's decision to scale back some operations, cutting back on plans at specific mines for the time being.

I think it's a wise decision that should pay dividends later. Which reminds me, the company's cash flow is excellent (remember, the write-off doesn't affect current cash, just past investment), so Kinross raised its dividend 33%. It only comes to about 1.5% annualized, but it's cash coming in.

The real reason to buy Kinross comes down to something else, however. After all the recent trouble, write-offs, etc., the company's proven and probable reserves are being valued by the market at less than $130 an ounce.

"Proven and probable" is a legally prescribed definition. It means the gold can be economically mined, though it doesn't specify at what margin. But at that price, there's likely to be a lot of room for profits.

If the company doesn't get its act together, I can see a bigger company like Barrick, Newmont or Goldcorp scooping it up. It’s small enough at $12 billion to be edible, but large enough to add meaningfully to an acquirer's girth.

We will start with a small position because of my reservations about gold in the short-term, and the market overall. Buy Kinross Gold up to $12.

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