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Centerra poised to outperform, says CIBC

CIBC Equity Research has upgraded Canada-based mid-tier Centerra Gold to ‘outperformer’ from ‘neutral’ based on what it sees as its potential to "outperform peers" this year and next.
Centerra poised to outperform, says CIBC Centerra poised to outperform, says CIBC Centerra poised to outperform, says CIBC Centerra poised to outperform, says CIBC Centerra poised to outperform, says CIBC

Centerra Gold's Kumtor mine in Kazakhstan is enjoying lower diesel price tailwinds

CIBC analyst Bryce Adams increased Centerra's price target to C$17 from $14 previously.

He highlighted continued resource conversion at Kumtor in Kazakhstan, the Oksut (in Turkey) ramp-up to steady-state production this year, and management's disciplined approach to growth while maintaining a strong balance sheet.

"All told, we view Centerra as well positioned to outperform peers over the remainder of 2020 and 2021," said Bryce.

At spot prices, Centerra trades at 0.65-times NPV (5% discount) and 4.6-times 2020 estimated cash flow per share, relative to peers at 0.72-times, and 6.8-times, respectively, according to CIBC.

Centerra previously reported a 112% increase to Kumtor measured and indicated resources to 6.3Moz. This updated resource was a result of a return to exploration drilling in 2018 and 2019, after drilling was suspended in 2012 as Centerra's relationship with the Kazakhstan government soured. Centerra is expected to provide an updated mine plan in the second half this year which is seen as a key catalyst for the company.

Bryce said with Oksut achieving commercial production at the end of May after its first first gold pour at the end of January. it would transition to free cash flow from mid-year and contribute about US$149 million of free cash by the end of 2021.

Meanwhile, Centerra was enjoying some COVID-19-related diesel price tailwinds, benefitting the large-scale Kumtor operation, where fuel accounts for as much as 20% of opex.

As at the end of March, Centerra had net cash of $58 million.

Bryce said the company's forecast operational performance, and balance sheet, augured well for regular dividend payments at least similar to its latest quarterly returns after coronavirus pandemic risk diminished. "Beyond that, we see potential for an increase to the dividend payout, which is already peer leading," he said.

Shares in the company (TSX:CG) have come off a 12-month high of C$14.24 but are still trading 53% above the prior-year level at $12.50, which capitalizes Centerra at $3.7 billion (US$2.8 billion).