Centerra Gold Inc

Centerra Gold Inc (TSX: CG) is a gold mining company based out of Canada, which is engaged in the business of operating, acquiring, developing and exploring gold properties in Asia, North America and other international markets.

Recent News

On 2^nd June 2020, Centerra Gold announced commercial production achieved as of 31^st May 2020 at Turkey-based Öksüt Gold Mine.

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

(Source: Quarterly Report, Company Website)

In the first quarter of the financial year 2020, driven by an increase in gold revenue and copper revenue for the period, the revenue stood at USD 374,045 thousand as against USD 334,040 thousand in the Q1 of the financial year 2019. The earnings from mine operations stood at USD 129,625 thousand in Q1 FY2020 versus USD 107,834 thousand in Q1 FY2019. Due to increased operating expenses for the period, the Group reported an operating income of USD 34,044 thousand in Q1 FY2020 versus an operating income of USD 52,164 thousand in Q1 FY2019. The Company reported a PBT (profit before tax) of USD 22,873 thousand in the first quarter of the financial year 2020 versus USD 48,323 thousand in Q1 FY2019. The net earnings stood at USD 20,008 thousand in the first quarter of the financial year 2020 versus USD 50,437 thousand in Q1 FY2019. The group’s basic earnings per share stood at $0.07 in the first quarter of the financial year 2020 versus $0.17 in Q1 FY2019. The cash balance increased to USD 193,845 thousand as on 31^st March 2020 versus a cash balance of USD 42,717 thousand as on 31^st December 2019.

Share Price Performance

Daily Chart as of 18^th June 2020, after the market closed (Source: Refinitiv, Thomson Reuters)

Centerra Gold Inc shares closed at CAD 13.36 at the time of writing after the market closed on 18^th June 2020. Stock's 52 weeks High is CAD 14.24 and Low is CAD 5.52. 

Conclusion

The Group introduced new technologies and techniques to upgrade its portfolio of services and products to meet the requirements of the faster pace commodity market. The Company is well-positioned to take benefits from growth trends across the energy and industrial markets. It has shown a decline in the financial performance in the first quarter of the financial year 2020. The top-line performance has improved, while the bottom-line performance declined, with reduced profitability for the period. The recent increase in the gold prices in the global markets will improve financial performance and bring operational stability. The liquidity position of the company remained strong with the robust balance sheet profile. The Group’s operations are impacted by the outbreak of covid-19 pandemic lately. The main aim of the Group is to strengthen the balance sheet, capital utilisation discipline plans and reducing its costs to preserve cash. The commodity market is extremely volatile, and on the lower side, and the Company has taken additional measures to improve the business’s long-term sustainability.

Based on the above rationale, we have given a “Hold” recommendation at the closing price of CAD 13.36 (as on 18^th June 2020). 

Maverix Metals Inc.

Maverix Metals Inc. (TSX: MMX) is a resource company that seeks to acquire and manage royalties and metal purchase agreements on projects that are in an advanced stage of development or on operating mines producing precious or other metals.

Recently, Pan American Silver Corp sold 10,350,000 common shares of Maverix at a price consideration of USD 4.40 per share amounting USD 45,540,000.

Q1FY20 Financial Highlights: Maverix Metals impresses with its operating highlights and reported total revenue of USD 9.29 million, as compared to USD 5.66 million in the previous corresponding quarter. The increase was driven by higher average realized gold price per ounce sold, which stood at USD 1,582 against USD 1,301 in pcp coupled an improved royalty revenue.  Gross profit stood at USD 5 million, significantly higher than USD 2.9 million in Q1FY20, thanks to the higher income. Income from operations stood higher at USD 2.41 million, against USD 1.82 million in pcp, supported by higher gross profit, while administration expenses and project evaluation expenses, remained a drag. Due to a rise finance cost and an elevated foreign exchange loss, net income took a hit and declined to USD 0.86 million, from USD 1.15 million in the previous corresponding period.

Q1FY20 Income Statement Highlights (Source: Company Reports)

Risks: Some operating partners of the group reported temporary shutdown in Mexico owing to COVID-19 pandemic. Any extension of the restrictions by the government is likely to impact the financial performance of the group. Further, the group’s revenue is linked to the international gold prices. Volatility in gold prices is likely to affect the group’s financial performance. 

Valuation Methodology: EV/ Sales Multiple Based Relative Valuation (Illustrative)

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

Stock Recommendation: The group is likely to face some pressure on the royalty revenue as some of its partners have temporarily shut down their operations, especially in Mexico owing to COVID-19 Pandemic. We expect this shutdown was for a short duration as the Government classified mining under essential activity. Further, elevated international gold prices are likely to provide the cushion to the cash flows in the near term. The Company has optimum liquidity which includes cash and cash equivalents of USD 16.8 million and USD 54.0 million available under its credit facility. The current liquidity position seems sufficient enough to support its near-term working capital requirements. We have valued the stock using EV to Sales value-based relative valuation method and have arrived at a target upside of lower double-digit (in percentage terms). We have valued the stock using P/CF-based relative valuation method. We have taken peers like Sandstorm Gold Ltd (TSX: SSL), Osisko Gold Royalties Ltd (TSX: OR), Franco-Nevada Corp (TSX: FNV) etc. as a peer group. Hence, considering the aforementioned points and risk mentioned, we recommend a ‘Speculative Buy’ rating on the stock at the closing market price of CAD 5.42 on June 18, 2020.

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

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.