Centerra Gold’s (NYSE:CGAU) share worth declined by almost 20% following the Q2 financial results launch. The outcomes have been disappointing because of the issues on the Oksut mine. The revenues declined to $167.7 million, or by 43% compared to the earlier quarter. The working money movement declined from $28.3 million to -$3.5 million, and internet earnings from $89.4 million to -$2.6 million. Moreover, it turned out that the Oksut mine operations can be affected for the following a number of quarters.
The issues on the Oksut mine started again in March, when Centerra introduced a “temporary suspension” of the gold dore bar manufacturing on the Oksut mine, as mercury was detected within the gold room of the adsorption-desorption restoration plant (ADR plant). The mining operations continued, solely the gold dore manufacturing was suspended. Centerra saved on processing the gold into the gold-in-carbon type. In April, the corporate acknowledged:
The Company continues to guage choices to remediate the problem on the ADR plant whereas endeavor an analysis to find out different technique of monetizing gold in carbon materials which may present a brief resolution till gold doré bar manufacturing is restarted at web site or over the lifetime of mine with minimal gear required on the ADR plant.
However, this was the final info relating to the Oksut mine scenario for the following three months. And the Q2 earnings name confirmed that the lengthy interval of silence was not a superb signal. Centerra discovered an answer for the mercury downside, however the mercury abatement retrofit within the gold room will take till the tip of this yr. Moreover, subsequently, some permits can be wanted earlier than it may be restarted. And there’s a fair larger downside. It turned out that Centerra does not have the permits essential to promote the gold-in-carbon to a 3rd celebration. Moreover, the corporate has been unable to safe permits to make use of extra activated carbon than is at the moment permitted. As a consequence, it can’t proceed gold-in-carbon manufacturing. It signifies that the Oksut mine operations have to be suspended utterly. The suspension of stacking and leaching operations was initiated on August 10. The suspension of mining and milling operations is being thought-about as properly.
Due to the issues on the Oksut mine, Centerra up to date its 2022 manufacturing and price steerage. Only 55,000 toz gold was produced at Oksut in H1 2022, and it’s anticipated that nothing can be produced in H2 2022. As a consequence, the Oksut mine manufacturing steerage was lowered from 210,000-240,000 toz gold to 55,000 toz gold. Fortunately, for Mount Milligan, the manufacturing steerage remained unchanged. So the general Centerra’s 2022 manufacturing was revised from 400,000-450,000 toz gold to 245,000-265,000 toz gold. And the AISC ought to improve from $600-650/toz gold to $1,000-1,050/toz gold. The H2 money flows can be decrease than initially projected, however they need to be optimistic. And the gold room retrofit ought to value solely $5 million, so there’s a good probability that Centerra’s money pile will improve additional in H2. Centerra is assured sufficient to keep up its dividend funds at C$0.07 ($0.055) per quarter, which suggests a really good 4.24% dividend yield on the present share worth.
And right here we come to essentially the most attention-grabbing a part of the latest developments. The damaging information from Oksut pressed Centerra’s share worth down by roughly 20%. Although a slight restoration adopted, the share worth remains to be solely $5.19. After the closure of the deal with Kyrgyzaltyn, Centerra’s share depend declined by 77,401,766 to 220,083,541. It signifies that Centerra’s market capitalization is $1.142 billion proper now. Centerra ended Q2 with money readily available amounting to $723.3 million and debt-free. As part of the Kyrgyzaltyn deal, Centerra paid $85 million in July. Therefore, its present money readily available must be round $640 million. It results in an enterprise worth of $502 million.
So the market values the Mount Milligan mine, the Oksut mine, the molybdenum belongings, and all of the exploration belongings, together with the Goldfield District Project (solely recently acquired for $206.5 million), solely at $502 million. Mount Milligan alone, with its annual manufacturing of round 200,000 toz gold and 70-80 million lb copper, and reserves of 1.84 million toz gold and 736 million lb copper is price greater than this.
Looking at it from a distinct viewpoint, Centerra has complete reserves of 4.849 million toz gold and 1.366 billion lb copper. At the present metals costs, it equals 7.639 million toz of gold equal. So the market attributes a price of solely $66 to every ounce of gold equal contained in reserves. This is a really low worth, particularly given the truth that Centerra is an precise miner, not solely a developer, furthermore, after eliminating Kumtor, the vast majority of its belongings are located in protected jurisdictions of Canada and the USA.
Since late April, Centerra’s share worth declined by almost 50%. The decline was initiated by the preliminary reviews of the problems on the Oksut mine, and later fueled by the gold and copper worth weak spot. The newest blow was struck by the latest Oksut mine information. The share worth shortly declined under $5, solely to return again to its present stage of $5.19. This worth is under the 10-day, in addition to the 50-day transferring common, and technically, the image does not look too optimistic. But basically, the shares are very low-cost and I would not be stunned to see them method the resistance within the $6.5 space within the coming weeks.
For the rest of 2022, Mount Milligan can be Centerra’s solely producing mine, which can scale back the money flows. However, it is not going to imply any downside for Centerra with its enormous money pile. And subsequent yr, after Oksut operations return to regular, Centerra will return again to the manufacturing fee of 400,000-450,000 toz gold per yr. Moreover, the gold-in-carbon inventories comprise 58,469 toz gold which can increase Centerra’s monetary outcomes as quickly because the dore manufacturing resumes.
There are some dangers relating to the timing of the required Oksut mine permits. However, Centerra is undervalued even in a extremely inconceivable nightmare state of affairs of Oksut not resuming its operations. In my earlier article, I envisioned Centerra’s share worth doubling. Back then, it meant a share worth goal of roughly $14. The goal stays, solely the ready can be longer. If all the things goes properly, there aren’t any extra damaging surprises, and the gold and copper costs stay no less than at their present ranges, the share worth of $14 could possibly be reached someday in H2 2023. For these ready, Centerra provides a really good dividend yield of 4.24%.