Mount Milligan And Goldfield Will Suffer Rising ESG Costs

Key Takeaways

• Rising regulatory pressures, declining ore grades, and increased resource nationalism are set to erode margins and restrict Centerra's financial flexibility and future growth.
  
• Heavy reliance on a few core assets and shifting investor demand away from physical gold could undermine long-term earnings stability and revenue base.
  
• Diversified growth projects, disciplined cost control, and strong financial flexibility position Centerra Gold for sustained production, stable revenues, and enhanced long-term shareholder value.

Catalysts

Engages in the acquisition, exploration, development, and operation of gold and copper properties in North America, Turkey, and internationally.

• Centerra's future growth prospects are increasingly exposed to escalating costs and regulations associated with environmental, social, and governance (ESG) compliance. Recent updates to Turkish royalty rates mean higher fixed costs at Öksüt regardless of gold price movements, which will erode net margins and pressure long-term profitability, especially as regulatory burdens continue to rise globally.
  
• The ongoing global transition to alternative investment vehicles and the adoption of digital assets may reduce investor and institutional demand for physical gold over time, undermining the long-term revenue base that underpins Centerra's business model, even as new production comes online at projects like Goldfield.
  
• Centerra remains heavily reliant on a very limited number of core producing assets, with future production growth tied to significant capital projects at Mount Milligan, Goldfield, Kemess, and Thompson Creek. Failure to replace reserves or delays and technical setbacks at any one of these sites could accelerate revenue declines and lead to long-term earnings volatility.
  
• Projected long-term industry trends indicate declining average ore grades globally, which will continue to drive up extraction and sustaining costs. Centerra's updated 2025 all-in sustaining cost guidance of $1,650 to $1,750 per ounce already reflects higher costs, and continued grade deterioration at both Mount Milligan and Öksüt will likely further compress margins and diminish returns on capital.
  
• Increased resource nationalism in key jurisdictions-illustrated by the Turkish government's recent royalty rate expansion-makes Centerra more vulnerable to unpredictable changes in taxation, royalties, and compliance requirements. This threatens to reduce free cash flow and reinvestment capacity, thereby restraining future revenue and impairing financial flexibility over the long term.

Centerra Gold Future Earnings and Revenue Growth

Assumptions

• This narrative explores a more pessimistic perspective on Centerra Gold compared to the consensus, based on a Fair Value that aligns with the bearish cohort of analysts.
• The bearish analysts are assuming Centerra Gold's revenue will grow by 4.4% annually over the next 3 years.
• The bearish analysts assume that profit margins will shrink from 6.2% today to 3.8% in 3 years time.
• The bearish analysts expect earnings to reach $52.9 million (and earnings per share of $1.04) by about August 2028, down from $75.3 million today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the price target of the more bearish analyst cohort, the company would need to trade at a PE ratio of 26.8x on those 2028 earnings, up from 19.6x today. This future PE is greater than the current PE for the CA Metals and Mining industry at 15.6x.
• Analysts expect the number of shares outstanding to decline by 3.8% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 6.46%, as per the Simply Wall St company report.

Centerra Gold Future Earnings Per Share Growth

Risks

• Increasing long-term gold prices and sustained strong demand, as indicated by the higher average realized gold price and robust NPV and IRR assumptions for Goldfield, could drive higher revenues and unlock project value, supporting future earnings growth.
  
• The successful extension of mine life at Mount Milligan through additional tailings capacity, throughput improvements, and further resource conversion, along with continuous brownfield exploration, has the potential to maintain or increase production and revenues for an additional decade or more.
  
• The company's diversified organic growth pipeline-including the near-term Goldfield project, Kemess development, and Thompson Creek restart-reduces over-reliance on any single asset, enhancing long-term revenue stability and limiting downside risk to net margins from project-specific issues.
  
• Centerra's strong financial position, with high liquidity and the ability to self-fund all key growth projects without equity dilution or increased debt, positions the company to weather market volatility and support ongoing or increased shareholder returns through dividends and buybacks, thereby underpinning long-term earnings per share.
  
• Strong operational focus on cost control, process optimization, and sustainability-evidenced by new energy certifications, indigenous partnerships, and adherence to the International Cyanide Management Code-may lower all-in sustaining costs and allow Centerra to command ESG-related valuation premiums, positively impacting net margins and long-term earnings.

Valuation

• The assumed bearish price target for Centerra Gold is CA$9.05, which represents the lowest price target estimate amongst analysts. This valuation is based on what can be assumed as the expectations of Centerra Gold's future earnings growth, profit margins and other risk factors from analysts on the more bearish end of the spectrum.
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of CA$15.01, and the most bearish reporting a price target of just CA$9.05.
• In order for you to agree with the bearish analysts, you'd need to believe that by 2028, revenues will be $1.4 billion, earnings will come to $52.9 million, and it would be trading on a PE ratio of 26.8x, assuming you use a discount rate of 6.5%.
• Given the current share price of CA$10.06, the bearish analyst price target of CA$9.05 is 11.2% lower. Despite analysts expecting the underlying buisness to improve, they seem to believe the market's expectations are too high.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.