Centerra Gold Inc. (TSX: CG) is 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

• Clocking free cash flow: Even without the contribution from the Kumtor Mine, the Company continues to generate significant free cash flow. The company generated USD 62.4 million in cash from operating activities in the third quarter of 2021, while the free cash flow stood at USD 41.0 million. Both mines of the corporation are on track to produce record free cash flow for the year. In addition, the Company expects ongoing activities to generate USD 125 to USD 175 million in consolidated free cash flow in 2021.

• 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 in FY2022 along lower AISC, which is considerable.

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 Q3 2021, it reported Cash position of USD 911.7 million with total liquidity of USD 1,311.7 million.

Source: Company

• Trading at discounted valuations: The stock is selling at an NTM EV/Sales multiple of 0.7x, compared to 1.6x for the industry (Basic Materials), and 1.7x for NTM EV/EBITDA, compared to 5.0x for the same industry. This indicates that the stock is trading 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 

Financial overview of Q3 2021

Source: Company

• Revenue of USD 220.5 million was recognized in Q3 2021, compared to USD 251.2 million in the pcp. The decrease in revenue was mainly due to decrease in ounces of gold sold at the Mount Milligan and Öksüt Mines and lower average realized gold, copper and molybdenum prices.
• On the back of lower revenue and higher production cost, the earnings from mine operations decreased to USD 68.5 million compared to USD 116.7 million in pcp.
• Earnings from the operation in the reported period stood at USD 43.6 million compared to USD 87.8 million in pcp.
• Primarily on the back of above stated reasons and higher income tax expense, the company posted lower net earnings at USD 27.6 million compared to USD 205.7 million in the previous corresponding period.

Risks associated with investment

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

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 1,311.7 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 9.35 as on November 24, 2021. We have considered, New Gold Inc, Equinox Gold Corp, etc. as the peer group for the comparison. 

Technical Analysis Summary

One-Year Technical Price Chart (as on November 24, 2021) Source: REFINITIV, Analysis by Kalkine Group

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

Disclaimer

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