Centerra Gold Inc.

Centerra Gold Inc. (TSX: CG) is a gold mining and exploration company, engaged in the operation, exploration, development, and acquisition of gold properties in Asia, North America and other markets worldwide. 

Management Updates:

Recently, the company announced the appointment of Mr. Tengiz A.U. Bolturuk to the Board of Directors.

Key Highlights:

• Stake Sale of Greenstone Gold Mines: Recently, the company sold its ~50% stake in Greenstone Gold Mines Partnership to Orion Mine Finance Group at a price consideration of USD 225 million, along with contingent payment obligations amounting ~USD 75 million.

• New Credit Facility: On January 04, 2021, the group announced the additional credit facility of USD 600 million. The management cited that the above funding would be used for general corporate purposes, which includes working capital needs, investments, acquisitions, and capital expenditures.

• Higher Profitability: The company has reported stable profitability over the years, which has resulted in elevated retained earnings. Increase in retain earnings indicates a resilient operational performance.                          

Source: Company Presentation

Q3FY20 Financial Highlights:

• CG announces its quarterly results, wherein the company posted revenue of USD 515.166 million, significantly higher than USD 388.276 million in the previous corresponding period (pcp). The increase in revenue was driven by a 31% y-o-y higher average realized gold prices, coupled with a 29% y-o-y higher average realized copper prices.
• Earnings from mine operations stood at USD 286.167 million, stood considerably higher than USD 148.667 million in pcp, driven by higher revenue and a lower cost of sales and a decline in depreciation, depletion and amortization costs.
• Earnings from operations stood at USD 211.444 million, as compared to a loss of USD 163.796 million in Q3FY19. The improvement was primarily due to inclusion of impairment expense of USD 230.50 million in pcp.
• The company posted net earnings of USD 205.743 million, as compared to a loss of USD 165.111 million in pcp.
• The company reported a cash balance of USD 484.187 million, while total assets stood at USD 2,991.755 million.

Q3FY20 Income Statement Highlights (Source: Company Reports)

Risks: The company’s revenue correlated with the price of gold and copper in the international market. Volatility gold and copper prices would affect the realization price and the company’s overall performance.

Valuation Methodology: P/CF Based (Illustrative)

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

Stock Recommendation

The company reported strong cash from operations at USD 748.049 million, significantly higher than USD 241.604 million in pcp. The stock closed above the long-term support levels of 100-days, 150-days and 200-days simple moving average (SMA), indicating a bullish price trend. We have valued the stock using P/CF based relative valuation method and have arrived at a target upside of single-digit (in percentage terms). For the said purpose, we have considered peers like New Gold Inc, Yamana Gold Inc etc. Hence, we recommend a ‘Hold’ rating on the stock at the closing market price of CAD 15.42 on January 7, 2021.

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

Equinox Gold Corp.

Equinox Gold Corp, (TSX: EQX) is a Canadian mining company with a portfolio of production, near-production and exploration-stage projects. The company's principal assets are - Aurizona gold project in Brazil and Castle Mountain.

Key Updates:

• Acquisition of Premier Gold Mine: The company announced that it has entered into definitive agreement to acquire Premier Gold Mines Limited. Consequently, Equinox Gold will retain Premier's interest in the world-class Hardrock Project in Ontario, the Mercedes Mine in Mexico, and the Hasaga and Rahill-Bonanza properties in Red Lake, Ontario.

• Significant growth in Cash Flows: The group reported a strong growth in cash from operations, which stood at USD 133.585 million for 9MFY20, as compared to USD 20.788 million, a year ago, which is a key positive and indicates operational resiliency.

Source: Company Reports

• Strong production outlook: EQX has a strong production outlook and is expected to report strong momentum in its total annual production, driven by the completion of existing projects, along with recent acquisitions.

Source: Company Presentations

Q3FY20 Financial Highlights:

• EQX announced its quarterly results, wherein the company reported USD 244.454 million, as compared to USD 91.896 million in the previous corresponding period (pcp). The increase was driven by higher gold sold which stood at 128,437 oz versus 62,379 oz in pcp.
• Earnings from mine operations stood significantly higher at USD 97.690 million, as compared to USD 30.786 million in Q3FY19.
• Income from operations stood at USD 74.611 million, higher than USD 26.525 million in pcp, supported by higher earnings from mine operations, partially offset by a higher exploration and general and administration and inclusion of care and maintenance expense.
• Net income stood at USD 11.812 million, higher than USD 8.057 million in Q3FY19.
• The company reported cash and cash equivalents of USD 310.719 million, while total assets stood at USD 2,604.356 million.

      Q3FY20 Income Statement Highlights (Source: Company Reports)

Risks: A slide in the international gold prices, along with the delay in project development might take a toll on the overall performance of the company. 

Stock Recommendation:

The company reported ample liquidity and has USD 570 million, including available cash balance and undrawn corporate revolver, sufficient to continue its short-term and long-term operations. The long-term outlook of gold remains bright, and we expect that EQX would report a stable cash flow in the foreseeable future. The stock of EQX appreciated ~27% and ~39% in the last nine months and one year, respectively, supported by elevated gold prices. Within the company’s Hardrock Project, the company has large-scale reserves with over 5.5 Moz and is expected of average annual gold production of 414,000 oz for the first five years, which is a key positive. Hence considering the above facts, recent price movement, current expansion plans and strong cash flow visibility, we recommend a ‘Hold’ rating on the stock of EQX at the current closing price of CAD 14.03 on January 7, 2021.

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

Disclaimer

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