Gold Price Appreciation, lower cash-costs lead to Margin-expansion: Centerra Gold Inc. (TSX: CG) a gold mining and exploration company. The group is engaged in the operation, development, and acquisition of gold properties in Asia, North America and other markets worldwide. 

The stock of CG stood resilient in the recent past and witnessed an increase in investor’s interest during the period. Notably, the stock is currently trading above its 200-day simple moving average (SMA) of CAD 10.58.

The Management declared a quarterly dividend of CAD 0.04 per share, payable on June 4, 2020.

Q1FY20 Financial Highlights: For the quarter ended March 31, 2020, CG came up with a stellar set of numbers and posted a 12% y-o-y jump in revenue of US$ 374.04 million. The expansion was driven by double-digit growth in gold price realization followed by an elevated copper volume sale, which was partially offset by a lower average realized copper price. Total gold sold stood at 203,258 oz, reflecting a 3% y-o-y growth while realized price (gold) stood a US$ 1,487/oz, depicting a 21% surge over Q1FY19. Earnings from mine operations improved to US$ 129.62 million, as compared to US$ 107.83 million, primarily attributed by higher sales and a slide in the production costs, while higher depreciation, depletion and amortization cost remained a drag. The Group’s earnings from operations took a hit and stood at CAD 46.4 million versus CAD 50.4 million in pcp. Net earnings came lower at CAD 20 million, as compared to CAD 50.43 million in Q1FY19. 

Valuation Methodology (Illustrative):  Price/CF based Relative Valuation

Note: All forecasted figures and peers have been taken from Refinitiv (Thomson Reuters), NTM-Next Twelve Months

Stock Recommendation: The stock of CG has generated an exuberant return of ~70% in the last one year and currently trading close to the upper band of its 52-weeks trading range of CAD 13.00 and CAD 5.52. Majority of the income is generated from the gold segment, while the appreciation in the gold spot price has boosted the cash flows. During the quarter, Centerra Gold Inc. successfully reduced its production costs per ounce of gold, which augers well for operating margin. The Company reaffirms its FY20 guidance despite a two-weeks facility shut-down in Mount Milligan mine, which is impressive. We expect the upswing in the gold spot price to continue for the later part of the year, which is likely to boost Company’s performance in coming quarters. The Company seems to be well capitalized and is expected to overcome the recent economic cycle without hampering its working capital. We have valued the stock using Price to Cash-flow based relative valuation approach and taken peers like New Gold Inc (TSX: NGD), Yamana Gold Inc (TSX: YRI), Iamgold Corp (NYSE: IMG)  etc. and arrived at a target price offering a single-digit upside potential (in % terms). Hence, we recommend a ‘Hold’ rating on the stock at the current price of CAD 12.97 as on May 8, 2020.

CG One-Year Daily Price Chart (Source: Thomson Reuters)

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