Centerra Gold Inc.

Centerra Gold Inc. (TSX: CG) is a Canada-based gold mining company which is engaged in operating, developing, exploring and acquiring gold properties across North America, Asia and other markets worldwide. The Company will disclose its second quarter FY20 result on July 31, 2020.

Q1FY20 Financial Highlights: CG announced its quarterly results, wherein the Company reported higher revenue of USD 374.04 million as compared to USD 334.04 million. The increase was driven by higher gold revenue, while copper revenue stood flat due to lower realized price. Average realized gold price stood at USD 1487 per oz, reflecting an increase of 21% on y-o-y basis. Earnings from mine operations soared to USD 129.62 million against USD 107.83 million in the previous corresponding period (pcp), thanks to the higher revenue and lower production costs, while an increased depreciation, depletion & amortization expense remained a drag. Earnings from operations dipped to USD 34.04 million from USD 52.16 million, a year ago. The decline was primarily attributable to significantly higher other operating expenses and increase in revenue-based taxes and exploration expenses while lower care & maintenance expense and corporate administration expense supported the profitability. The increase in other expense was due to the inclusion of reclamation expense amounting to USD 26.44. Net earnings stood lower at USD 20 million compared to USD 50.43 million, due to lower earnings from operations and a surge in other expense amounting to USD 7.57 million as compared to an income of USD 0.14 million in pcp. The quarter ended with a cash balance of USD 193.84 million, while total assets stood at USD 2,792.87 million.

Q1FY20 Income Statement Highlights (Source: Company Reports)

Risks: The income of the Company is directly correlated with commodity prices such as gold and copper. A slide in the commodity prices would dampen the top-line adversely. The short-term shut-down of production activity at Mount Milligan may have an impact on 2020 production.

Valuation Methodology: Price to CF based Relative Valuation (illustrative)

Note: All the forecasted figures are taken from Thomson Reuters, NTM: Next Twelve Months

Stock Recommendation: The stock of CG stood resilient in the recent past and appreciated ~62% and ~72% in the last six months and one year, respectively. The income of the Company is supported by elevated gold prices due to rising investor's interest in 'defensive asset class'. The Company reported commencing of commercial production at its Öksüt Gold Mine located in Turkey and is expected to drive higher production volumes in the coming quarters, which is a key positive. We believe the gold price to remain elevated in the near term on account of volatility in other assets class. The Company's cash flow and income would be benefitted by the elevated gold price in the coming days. Investors should note that the CG stock has closed above its 200-days simple moving average of CAD 11.09, indicating a bullish pattern. We have valued the stock using the Price to CF based relative valuation approach and arrived at a target price offering single-digit upside potential (in % terms). For the said purpose, we have considered industry (Basic Materials) median on NTM basis. Hence, we recommend a 'Hold' rating on the stock at the closing market price of CAD 16.19 as on July 08, 2020.

CG Daily Technical Chart (Source: Refinitiv, Thomson Reuters)

Barrick Gold Corp

Barrick Gold Corp (TSX: ABX) is a mining company based out of Canada. The Group is engaged in the business of production and sale of copper and gold. The Company owns gold producing mines in the Dominican Republic, Australia, Argentina, Peru, the United States and Canada.

Financial Highlights – Q1 Financial Year 2020 (31^st March 2020, USD, million)

(Source: Quarterly Report, Company Website) 

In the first quarter of the financial year 2020, driven by an increase in the sale of gold for the period, the revenue stood at USD 2,721 million (Q1 FY2019: USD 2,093 million). Driven by higher revenue and lower operating expenses, the group reported an operating profit of USD 1,153 million in Q1 FY2020 (Q1 FY2019: USD 427 million). The company reported a PBT (profit before tax) of USD 1,049 million in the first quarter of the financial year 2020 (Q1 FY2019: USD 307 million), reflecting lower finance costs for the period. The net income stood at USD 663 million in the first quarter of the financial year 2020 (Q1 FY2019: USD 140 million). The net income attributable to shareholders stood at USD 400 million in Q1 of the financial year 2020 (Q1 FY2019: USD 111 million). The cash balance increased to USD 3,327 million as on 31st March 2020 versus a cash balance of USD 3,314 million as on 31st December 2019.

Share Price Performance

Daily Chart as of 8 July 2020, after the market close (Source: Refinitiv, Thomson Reuters)

Barrick Gold Corp shares closed at CAD 37.5 at the time of writing after the market close on 8 July 2020. Stock's 52 weeks High is CAD 40.13 and Low is CAD 17.52.

Key Risks

Any change in regulations and government policies could affect the overall business of the Company. Liquidity and interest rate risks could affect the operations of the Company. The market conditions in which the Company operates is full of challenges and might impact the operational performance and reduce the financial performance as well.

Conclusion

The Company has shown an increase in financial performance in the first quarter of the financial year 2020. Both the top-line and the bottom-line performance have increased, with improved profitability for the period. The liquidity position of the company has improved, and the balance sheet remained well-positioned. The Group operations are impacted by the outbreak of covid-19 pandemic and have been focusing on strengthening the balance sheet and reducing costs to preserve cash. The recent increase in the gold prices in the global markets will improve financial performance and bring operational stability. The Company received communication from Papua New Guinea’s government that SML will not be extended and Porgera mine to be placed in maintenance and temporary care. The Group has reduced the production guidance for the FY2020, while the cost guidance remained the same. The production of gold is expected to be higher in H2 FY2020 as compared to H1 FY2020.

Based on the above rationale, we have given a “Hold” recommendation at the closing price of CAD 37.5 (as on 8 July 2020).

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.