Centerra Gold Inc (TSX: CG) a gold mining and exploration company engaged in the operation of gold properties in Asia, North America, and other markets worldwide. The company manages its reportable operating segments by a combination of geographic location and products. 

Key highlights

• Higher free cash flows: The company's operating cash flow in Q2 2021 was USD137 million, and free cash flow improved sequentially to USD 81 million, which is a big positive, thanks to agile management and operational efficiency. In addition, the Company expects to produce USD 125 to USD 175 million in consolidated free cash flow from ongoing activities in 2021.

Source: Company

• Strong Balance Sheet with no debt: Despite a capital-intensive business model, the company is virtually debt-free. It has consistently deleveraged its balance sheet since December 2016, and at the end of the Dec 31, 2020, it became debt free. Moreover, at the end of Q2 2021, it reported Cash position of USD 882.9 million with total liquidity of USD 1,282.9 million.

Source: Company

• Healthy production guidance: Recently, the management stated that their 2021 consolidated gold production would be in a range of 270 - 310 K ounces, while the copper production would be in a range of 70 -80 Mlb. Furthermore, the production of both commodities will be on a higher note on in FY2022 also which is considerable.

Source: Company

• Trading at discounted valuations: The stock is selling at an NTM EV/Sales multiple of 0.8x, compared to 1.6x for the industry (Basic Materials), and 2.0x for NTM EV/EBITDA, compared to 4.9x for the industry (Basic Materials). This indicates that the stock is selling at a significant discount to the industry. Multiple valuation metrics show that the stock is cheap. The image is reflected in the table below.

Source: REFINITIV, Analysis by Kalkine Group

• Event update: the company will report its third quarter financial and operating on Friday November 5, 2021.

Financial overview of Q2 2021

Source: Company

• Revenue of USD 202.3 million was recognized in Q2 2021 compared to USD 130.0 million in the pcp. The increase in revenue was mainly due to an increase in ounces of gold sold at the Mount Milligan and Öksüt Mines and higher average realized gold, copper and molybdenum prices.
• On the back of higher revenue and lower production cost, the earnings from mine operations increased to USD 64.9 million compared to USD 18.4 million in pcp.
• Earnings from the operation in the reported period stood at USD 28.9 million compared to a loss of USD 40.4 million in pcp.
• Primarily on the back of loss from discontinued operations the company reported net loss of USD 851.6 million against a profit of USD 80.7 million in pcp.

Risks associated with investment

The Company’s financial performance is mostly dependent on the price of gold, which directly affects their profitability and cash flow. Any drawdown in the gold prices would impact the group’s performance. 

Valuation Methodology (Illustrative): EV to Sales

Stock recommendation

Due to the Kyrgyz Republic Government's seizure of the Kumtor Mine, the Company has amended its consolidated full-year 2021 guidance and three-year outlook to exclude the Kumtor Mine. The company forecasts consolidated gold output of 270,000 to 310,000 ounces and copper production of 70 to 80 million pounds in 2021. Furthermore, it is on pace to meet its 2021 production and will most likely generate USD125 to USD175 million in consolidated free cash flow from continuing operations in 2021. Additionally, the company is almost debt-free, with total liquidity of USD 1,282.9 million, which is a significant plus. Therefore, based on the above rationale and valuation, we recommend a “Buy” rating at the closing price of CAD 9.28 as on October 29, 2021. We have considered, New Gold Inc, Yamana Gold Inc, Eldorado Gold Corp as the peer group for the comparison.

*Depending upon the risk tolerance, investors may consider unwinding their positions in a respective stock once the estimated target price is reached. 

Technical Analysis Summary

One-Year Price Chart (as on October 29, 2021). Source: REFINITIV, Analysis by Kalkine Group

*The reference data in this report has been partly sourced from REFINITIV.

Disclaimer

The advice given by Kalkine Canada Advisory Services Inc. and provided on this website is general information only and it does not take into account your investment objectives, financial situation and the particular needs of any particular person. You should therefore consider whether the advice is appropriate to your investment objectives, financial situation and needs before acting upon it. You should seek advice from a financial adviser, stockbroker or other professional (including taxation and legal advice) as necessary before acting on any advice. Not all investments are appropriate for all people. The website www.kalkine.ca is published by Kalkine Canada Advisory Services Inc. The link to our Terms & Conditions has been provided please go through them. On the date of publishing this report (mentioned on the website), employees and/or associates of Kalkine do not hold positions in any of the stocks covered on the website. These stocks can change any time and readers of the reports should not consider these stocks as advice or recommendations later.