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Centerra Gold slumps on Oksut permit woes

Centerra Gold’s share price has slumped to a three-and-a-half year low following the release of second quarter results which missed estimates, came with negative guidance revisions, and threw question marks over the outlook for the Oksut mine in Turkey.
Centerra Gold slumps on Oksut permit woes Centerra Gold slumps on Oksut permit woes Centerra Gold slumps on Oksut permit woes Centerra Gold slumps on Oksut permit woes Centerra Gold slumps on Oksut permit woes

Centerra's Oksut

The stock fell 22% day on day to close the 10 August session at C$6.28/share (US$4.91). It's less than half the value it was in mid-April and at the lowest levels seen since January 2019.

The company recorded an adjusted net loss of US$36.2 million from continuing operations for Q2, which is down 146% from earnings of $49.9 million for the same period last year.

On a per share basis, that was a loss of $0.12, which is down from earnings of $0.17 during the quarter last year.

National Bank of Canada Financial Markets noted that this came in below consensus and NBF estimates of losses of $0.02 and $0.03, respectively.

"The miss to our estimate was driven by less gold ounces sold resulting in less revenue than expected, which was met with higher than anticipated mining and processing costs and exploration expenses," NBF said.

"We continue to see the potential for Centerra's shares to re-rate to trade more in line with peers now that the Kumtor dispute resolution agreement is closed, but we believe we need to see certainty in Oksut's restart for this to begin," it said.

Gold room operations at the ADR plant at Oksut were suspended in early March due to mercury detected in the gold room. And on 10 August, Centerra initiated a suspension of the mine's stacking and leaching operations due to an inability to obtain approval from regulators to use more activated carbon than is currently allowed in the environmental impact assessment.

Centerra is planning on submitting a new EIA by the end of this month and "pursue its approval as quickly as possible".

Canaccord Genuity Capital Markets analyst Dalton Baretto said: "We note that the mine's operating permit is also scheduled to expire in January 2023 and will need to be renewed; management indicates that this is a separate and ‘due course' process, but our view is that these processes are not always entirely isolated".

"We believe there will be further permitting delays, and we have conservatively delayed a re-start of Oksut in our estimates to early Q2/2023," he said.

CG lowered their price target for Centerra shares from C$11 to C$8.

"We maintain our BUY rating on the company given the decline in the share price today, the attractive relative valuation of the company, and the potential for a significant shareholder return, in our view," Baretto said.

NBF has a price target of C$14 for the company.

Centerra updated its 2022 production guidance, dropping it to 245,000-265,000 ounces, from the previously forecast 400,000-450,000oz. And all-in sustaining costs on a by-product basis were lifted from $600-$650/oz to $1,000-$1,050/oz.

Guidance ranges for 2023 were withdrawn completely.

"In better news, CG's balance sheet remains robust (although not as robust as we had forecast), and we believe this will be a significant strategic card for the board to play in the near future," Baretto said.

The company exited the quarter with no debt and a cash balance of $723 million, which compares to CG's estimate of $850 million.

Centerra has a market capitalisation of C$1.38 billion.