Centerra Gold Proves Hopeful Amidst Gold Miners Index Decline

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Written By Kevin MacDonald

Despite Several Sectors ending on a high note in 2023, the Gold Miners Index (GDX) has remained an anomaly, having given up all of its gains acquired in Q4. 

Some of the gold price’s underperformance can be attributed to weaker-than-usual production from large miners and intensive inflationary pressures.

Despite this, Centerra Gold (NYSE: CGAU) has strengthened its already strong balance sheet and is currently working to identify their next project to develop or acquire for their portfolio.  

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Strong Production Growth and Financial Performance

Centerra Gold recently unveiled its preliminary results for Q4 and FY2023, showcasing robust production figures and impressive financial gains.

In Q4, the company reported a quarterly production of approximately 129,300 ounces of gold and approximately 19.7 million pounds of copper.

Notably, there was a significant year-over-year increase in gold production, amounting to a staggering 143%. 

This surge was primarily attributed to the restart of processing at its Oksut Mine in Turkiye, which had been offline for over a year, awaiting approval for its amended Environmental Impact Assessment (EIA) related to mercury abatement retrofit.

Credits: DepositPhotos

Furthermore, Centerra demonstrated its strong cash flow generation capabilities, increasing its cash position by over $120 million in Q4 to a substantial $613 million. 

A portion of this increase in cash was related to the $25 million deferred payment by Orion Mine Finance for its Greenstone sale, but this still translated to $90+ million in free cash flow in the quarter.

This remarkable achievement underscores the company’s solid financial footing and its ability to deliver value to shareholders even amidst challenging market conditions.

Operational Insights and Asset Outlook

Digging deeper into operational performance, Mount Milligan, one of Centerra’s key assets, experienced a decline in production compared to the year-ago period. 

The asset produced approximately 40,500 ounces of gold and approximately 19.7 million pounds of copper in Q4. 

Despite falling slightly below its revised guidance, Centerra remains optimistic about Mount Milligan’s prospects for 2024, projecting a production increase to around 190,000 ounces of gold at the midpoint.

Additionally, the company reported positive developments at Mount Milligan, including reserve growth and a recent agreement with Royal Gold that extended the mine life.

On another positive note, the asset ended the year with 2.82 million ounces of gold, up from 2.64 million ounces of gold. It is also worth noting that the reserve is backed by an additional 2.3 million ounces of gold and 850 million pounds of copper in the M&I category. 

These initiatives have added momentum to the asset’s growth trajectory and positioned it favorably for the future.

Meanwhile, Oksut Mine continued its stellar performance, achieving production of approximately 89,000 ounces of gold in Q4. 

This impressive output, coupled with elevated levels of recoverable ounces, contributed to a total production of approximately 350,000 ounces of gold in FY2023. Centerra capitalized on the strong performance of Oksut, maximizing production amidst a transitional year for its flagship asset.

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Future Prospects and Development Initiatives

Looking ahead to the rest of 2024, Centerra anticipates another solid year, with Oksut expected to maintain its impressive production levels of around 200,000 ounces of gold. 

Moreover, Mount Milligan is poised to benefit from higher-grade deferred material from Phase 7, supporting this year’s production targets. The company aims to sustain costs at respectable levels, with all-in sustaining costs projected at $1,125/oz at the midpoint.

However, Centerra faces a production cliff in 2025 as production normalizes at Oksut, leading to a decline in annual gold production from 390,000 ounces in 2024 to 300,000 ounces in 2025. 

Taking this into consideration, unless Centerra is able to acquire an asset or advanced-stage asset soon, investors may need to prepare for a much lower proportion of gold as a percentage of total revenue. 

To address this challenge, the company is exploring potential acquisitions or partnerships to bolster its production profile and maintain revenue stability.

Most Recent Developments 

Centerra is now focusing on a new optimization program at Mount Milligan. According to the company, their areas of focus will be improvements to load/haul cycle and better productivity, enhanced mine maintenance practices and refinement of the geology-metallurgy model, continuous improvement work in overall plant operability, flotation circuit, consumables, material handling, and blending consistency of plant feed. 

Improvements in these areas will extend the mine life by creating leaner operational processes and lowering costs, while at the same time improving employee retention and reducing turnover. 

Royal Gold has also put into effect a new agreement with Centerra that will allow for the extension of the mine life with the potential for further mine life extensions. 

Credits: DepositPhotos

In exchange for the agreement, Centerra will provide the following consideration to Royal Gold; an upfront cash payment of $24.5 million, the delivery of 50,000 ounces of gold, 5% free cash flow interest starting in approximately 2030 at Mount Milligan, increasing to 10% after 2036. 

The mine life extension work will start a PEA to look at incorporating inventory west of the existing pit, and additional exploration drilling. 

As part of the deal that will potentially extend the life of the mine into the late 2030s, Centerra will receive higher cash payments starting in approximately 2030, with gold payments being the lower of $850/oz and 50% of the spot gold price from 2030 to 2035 and the lower of $1,050/oz and 66% of the spot gold price from 2036 thereafter.

Goldfield Project & Nevada Map

Furthermore, Centerra is also looking at focusing on a new project focusing on Gemfield and run-of-mine oxide/transition ore. 

The project is expected to have a low capex bill similar to Orla’s Railroad South Project on the Carlin Trend in Nevada and will help to offset the lost production from Oskut and is set to head offline in 2029. 

Valuation and Investment Considerations

Centerra Gold presents an intriguing investment opportunity, trading at a market cap of approximately $1.13 billion and an enterprise value of around $530 million. 

Despite its relatively low capitalization compared to peers, Centerra remains undervalued, trading at less than 0.60x P/NAV.

However, investors should consider factors such as declining free cash flow generation in the coming years and the need for production diversification beyond 2025. 

While Centerra’s current valuation presents an attractive entry point, potential acquisitions or partnerships could further enhance its growth prospects and long-term value proposition.

In conclusion, Centerra Gold’s strong operational performance, solid financial position, and strategic initiatives position it favorably for future growth. 

Investors keen on gaining exposure to the gold market should closely monitor Centerra’s development initiatives and evaluate its potential as a value investment in the mining sector.

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