Mount Milligan's Future Expansion May Enhance Revenue, But Cost Pressures Could Impact Margins

Key Takeaways

• Long-term operations and strategic evaluations at Mount Milligan and Goldfield could enhance future earnings and revenue potential.
  
• Vertical integration and cost optimizations at Thompson Creek and Langeloth are expected to improve margins and cash flows.
  
• Inflated costs and lower gold grades at mines may reduce revenue and strain cash flow, affecting net margins and strategic investments.

Catalysts

A gold mining company, engages in the acquisition, exploration, development, and operation of gold and copper properties in North America, Turkey, and internationally.

• The potential long-term multi-decade operations at Mount Milligan, driven by ongoing evaluations and technical studies, could enhance revenue and extend mine life, impacting future earnings.
  
• The restart and progressive ramp-up of Thompson Creek and Langeloth operations are expected to generate significant EBITDA, improving cash flows and overall net margins.
  
• Vertical integration plans at Langeloth, blending high-quality concentrates from Thompson Creek with lower quality third-party concentrates, are anticipated to improve margins and profitability.
  
• Expected cost optimizations and increased mill throughput at Mount Milligan could potentially lead to reduced production costs, positively impacting net margins and earnings.
  
• Strategic plans to grow gold exposure through projects like Goldfield and alternative evaluations for Kemess could increase resource estimates, enhancing future revenue potential.

Centerra Gold Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Centerra Gold's revenue will decrease by 5.7% annually over the next 3 years.
• Analysts assume that profit margins will shrink from 8.3% today to 6.0% in 3 years time.
• Analysts expect earnings to reach $63.3 million (and earnings per share of $0.48) by about February 2028, down from $104.1 million today.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 32.0x on those 2028 earnings, up from 13.1x today. This future PE is greater than the current PE for the CA Metals and Mining industry at 13.0x.
• Analysts expect the number of shares outstanding to decline by 1.41% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 7.03%, as per the Simply Wall St company report.

Centerra Gold Future Earnings Per Share Growth

Risks

• Inflation in Turkey may outpace the devaluation of the lira in the future, potentially increasing operating costs at the Oksut mine, which could impact net margins.
  
• The gold production at Oksut is expected to come from lower-grade areas, with a dip in grades projected into 2025, which might reduce overall revenue from gold sales.
  
• There is a risk of lower gold recoveries at Mount Milligan due to oxidized material, which could lead to reduced revenue from lower anticipated gold yield.
  
• Restarting operations at Thompson Creek requires significant capital investment over the next three years, which could pressure cash flow and affect available funds for immediate earnings or other strategic initiatives.
  
• Production cost pressures, such as increased equipment refurbishment costs at Mount Milligan, could lead to higher all-in sustaining costs, ultimately impacting net earnings.

Valuation

• The analysts have a consensus price target of CA$11.611 for Centerra Gold based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of CA$13.81, and the most bearish reporting a price target of just CA$8.83.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $1.0 billion, earnings will come to $63.3 million, and it would be trading on a PE ratio of 32.0x, assuming you use a discount rate of 7.0%.
  
• Given the current share price of CA$9.14, the analyst price target of CA$11.61 is 21.3% higher. Despite analysts expecting the underlying buisness to decline, they seem to believe it's more valuable than what the market thinks.
  
• 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.