Shares of Centerra Gold [stock_market_widget type="inline" template="generic" color="default" assets="CG" markup="(TSX: {symbol} {currency_symbol}{price} ({change_pct}))" api="yf"] have shot up big time in the last six months, gaining more than 40% thanks to a combination of improving gold prices and operating performance. The company finished 2018 on a high and it won’t be surprising to see it gain more momentum going forward because of its bright guidance.
Let’s take a closer look at Centerra’s recent performance and see why the stock is on track to deliver more upside.
On Track to Get Better
Centerra is coming off a strong 2018, as the company was able to exceed its company-wide gold production guidance for the year. Centerra’s annual output last year was 729,556 ounces. Its all-in sustaining costs for the year stood at $754 per ounce of gold sold.
However, the company’s guidance for the current year might not appear very impressive at first sight. Centerra forecasts production of 690,000 ounces to 740,000 ounces for the year. The mid-point of that guidance suggests that the company’s output could decline around 2% this year, and that would be because of the water supply issues Centerra is facing at the Mount Milligan mine.
The good part, however, is that the company will be able to keep a handle on its costs despite the operational challenge that it faces. Centerra expects its all-in sustaining costs this year to range between $723 and $775 an ounce. The mid-point of that guidance — $749 per ounce — represents a slight decline from last year’s cost profile.
As a result, Centerra Gold looks well-placed to take advantage of an improvement in gold prices as the year progresses. The slight decrease in the production will be offset by a higher average price this year. This is because Centerra recorded a consolidated average realized gold price of $1,175 an ounce last year, which is way below the level at which the precious metal is currently trading at.
The Gold Price Catalyst
The price of gold is currently hovering at more than $1,300 an ounce, and it has the potential to rise higher. Even if gold holds on to its current price levels, Centerra could witness a 10% increase in its average realized price this year. That would be enough to make up for the slight production decline, while the lower costs should help deliver bottom line and cash flow improvements.
Not surprisingly, analysts expect Centerra’s earnings to shoot up to $0.48 per share this year from $0.26 per share in 2018, with a further increase in the cards for next year. The company’s revenue, meanwhile, is expected to increase by around 3% in 2019, followed by a 16% increase next year. This increase in the revenue will be driven by Centerra’s potential expansion at the Kumtor mine in Kyrgyzstan, where capacity is expected to rise around 10% to 15%.
This is how Centerra could once again resume production growth and help deliver more upside after its terrific run so far this year.
