Mount Milligan's New Studies And Drilling Will Aim To Extend Mine Life

Key Takeaways

• Strategic capital allocation, including share buybacks and infrastructure investments, could enhance earnings per share and shareholder value.
  
• Expansion efforts and operational ramp-ups aim to boost production capacity, improve revenue streams, and enhance net earnings.
  
• Decreased production and rising costs may strain Centerra Gold's earnings, while capital expenditures and resource challenges could limit future revenue growth.

Catalysts

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

• The decision to move directly to a prefeasibility study for Mount Milligan, combined with an extensive drill program, aims to increase proven and probable reserves, potentially impacting future revenues positively by extending the mine's life and production capacity.
  
• The ongoing resumption and ramp-up of operations at Thompson Creek and Langeloth, representing significant investments, are expected to enhance future production levels, thereby contributing to higher revenue streams and improved net earnings.
  
• Exploration and technical studies at Kemess are underway, with early indications pointing to a potentially long-life operation that could provide future sources of gold and copper production, thereby increasing revenue and improving earnings stability.
  
• Potential improvements in milling processes and increased annual throughput at Mount Milligan are anticipated, potentially lowering operating costs and boosting overall recovery rates, which would positively impact net margins going forward.
  
• Centerra Gold's focus on strategic capital allocation, including ongoing share buybacks and infrastructure investments from free cash flow, suggests potential enhancements in earnings per share (EPS) and shareholder value in the future.

Centerra Gold Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Centerra Gold's revenue will grow by 2.9% annually over the next 3 years.
• Analysts assume that profit margins will increase from 6.6% today to 13.2% in 3 years time.
• Analysts expect earnings to reach $174.5 million (and earnings per share of $0.69) by about May 2028, up from $80.4 million today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 11.6x on those 2028 earnings, down from 17.2x today. This future PE is lower than the current PE for the CA Metals and Mining industry at 13.3x.
• Analysts expect the number of shares outstanding to decline by 1.94% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 6.87%, as per the Simply Wall St company report.

Centerra Gold Future Earnings Per Share Growth

Risks

• The decrease in gold and copper production at Mount Milligan due to lower grades could impact future revenue and net margins.
  
• Oksut's higher all-in sustaining costs primarily due to lower production profiles and inflation in Turkey might strain earnings.
  
• The potential need for significant capital expenditures to restart and maintain operations, like the $397 million investment into Thompson Creek, could affect cash flow and net margins.
  
• The impairment and shelving of the Goldfield project suggest potential resource challenges, possibly limiting future revenue growth.
  
• While there is a focus on optimizing existing operations, future competitive or geopolitical shifts, particularly regarding tariffs and regulations, could affect operational costs and net profits.

Valuation

• The analysts have a consensus price target of CA$11.613 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$13.95, and the most bearish reporting a price target of just CA$8.97.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $1.3 billion, earnings will come to $174.5 million, and it would be trading on a PE ratio of 11.6x, assuming you use a discount rate of 6.9%.
• Given the current share price of CA$9.14, the analyst price target of CA$11.61 is 21.3% higher.
• 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.