Centerra Gold Inc

Centerra Gold Inc (TSX: CG) engaged in the operation, development, exploration and acquisition of gold and copper properties. It operates through the following segments: Kyrgyz Republic, Turkey, North America, and Corporate and Other.

Investment Rationale

• An income play: At the lats traded price, CG shares are yielding approximately 3.08%, and company has consistently declared quarterly dividend since April 2020. Further, the CG’s dividend yield is ~2.11x of the Canada 10-Year Government Bond yield of 1.42%.
• Strong underlying commodity prices: The underlying commodities price of the company is firm and strong, with Gold and copper are hovering well above their crucial support levels. Also, the underlying commodities are expected to do well in the upcoming quarters. Gold is expected to do well because of heightened uncertainties, and it is expected that demand for safe -haven asset class could surge in the upcoming quarters. And surge in industrial demand of copper will keep copper prices elevated.
• Insiders are net buyers over past six months: Ove the past six-month, insiders’ transaction indicates that they are bullish on the long-term prospect of the company. As they are using dips as an opportunity to accumulate shares at a lower price.

Insiders’ activities. Source: REFINITIV, Analysis by Kalkine Group

• Gaining technical strength: On daily price chart, the leading momentum indicator the Moving Average Convergence Divergence (MACD) is rising and registered a crossover above 9-day SMA signal line, a bullish indicator. Also, CH shares are taking support of the rising tend line, another positive indicator.

Technical price chart (as on December 22, 2021). Source: REFINITIV, Analysis by Kalkine Group

Risk Associated

The company is exposed to variety of risks including adverse move in the gold and copper prices, strength in dollar index, and increase in cost of capital as well. Further, the outcome of the recent lawsuit launched by Kyrgyzstan against Centerra Gold for its alleged breach of cyber security and employee rights at Kumtor gold mine, which it previously operated.

Financial Highlights:

Source: Company Filing

• Revenue during the Q3FY21 was stood at USD 220.6 million, a decline of 12% on a YoY basis. This was primarily because of 21% decline in gold sold in Q3FY21 on a YoY basis, 15% decline in copper sold and lower average gold realization prices.
• Average realized Copper prices in the quarter under consideration was improved to USD 2.55/ounce vs USD 2.43/oz reported in Q3FY20.
• Free cash flow reported in the quarter stood at USD 41.0 million, however it declined by 67% on a YoY basis.
• Basic Net earnings per share also plummeted by 68% to USD 0.09 vs USD 0.28 reported in the same period of the corresponding previous financial year.
  

Valuation methodology (illustrative): Price to Cash Flow-based valuation

Stock recommendation

The company’s operations performed decent in the third quarter and achieved Company-wide gold production from continuing operations of 76,913 ounces at all-in sustaining costs on a by-product basis of USD 781 per ounce. With this performance, and what company is expecting in the fourth quarter, they are on track to achieve the upper-end of their gold production guidance and the lower-end of the all-in sustaining costs on a by-product basis guidance. Financially, Centerra Gold continues to generate significant free cash flow, even without the contribution from the Kumtor Mine. Also, strong underlying commodity prices will continue to bolster the overall financial health of the company in the upcoming quarter.  Hence, we recommend a “Buy” rating on CG stock at the closing price of CAD 9.31 (as on December 22, 2021).

*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:

1-Yearprice chart (as on December 22, 2021). Source: REFINITIV, Analysis by Kalkine Group

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

Disclaimer

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