This Gold Miner Has More Upside After 60% Gains

Centerra Gold [stock_market_widget type="inline" template="generic" color="default" assets="CG.TO" markup="(TSX: {symbol} {currency_symbol}{price} ({change_pct}))" api="yf"] has received a nice shot in the arm this year as gold prices have been on the rise, but this is not the only reason why the stock has delivered an impressive gain of nearly 60% in the first half of 2019.

Centerra’s focus on keeping its costs under control has been a tailwind for it even though the company’s output is expected to take a hit in 2019. But despite that, Centerra should be able to do well this year as the company has a lot going in its favour.

Strong Operational Results

Centerra Gold delivered a 42% increase in revenue for the first quarter of 2019. This impressive jump in the company’s revenue was a result of higher production, which increased to 183,563 ounces during the quarter as compared to 129,764 ounces in the prior-year period. This 41% increase in gold production was enough to help Centerra offset the 4% drop in the average realized gold price, which came in at $1,229 an ounce during the quarter.

Meanwhile, the company’s operating income increased to the tune of 56% year over year to $107.8 million. As such, Centerra delivered a terrific operational performance in the first quarter of the year.

The higher grades allowed Centerra to boost production and keep costs under control at the same time.

More importantly, the increase in Centerra’s gold production was a result of higher grades at the Kumtor mine. The company recorded gold grades of 3.73 grams per ton at this mine during the quarter, up from the 2018 average of 2.58 g/t.

The higher grades allowed Centerra to boost production and keep costs under control at the same time. That’s because a company needs to mine less waste tonnage in case gold grades are on the higher side, which allows it to keep costs under check.

Centerra’s adjusted operating costs during the quarter came in at $423 an ounce, down 5% from the year-ago period’s figure of $446 an ounce. Looking ahead, the company is well-equipped to deliver both revenue and earnings growth as it is pulling the right strings to increase its output at a lower cost base.

Favourable Exploration Results Will Help Improve Financial Performance

Centerra is carrying out several exploration projects that could boost its production in the future. In fact, the company doubled its outlay on exploration activities in the first quarter of 2019 to $5 million.

Investors can expect the exploration activities to drive future revenue growth. For instance, Centerra is going to expand its mill facility at the Kumtor mine. A feasibility study regarding the same is currently underway, and if it is approved and the expansion happens, Centerra’s output from the mill could increase to the tune of 10% to 15%.

Don’t be surprised to see Centerra surpass expectations of Wall Street and investors alike in the coming months. The market is currently expecting the company to deliver just 10% revenue growth this year and a 7.5% increase in 2020. But if the steps that Centerra is taking to boost production actually come through, expect the stock to keep rising and deliver more upside.

The opinions provided in this article are those of the author and do not constitute investment advice. Readers should assume that the author and/or employees of Capital 10X hold positions in the company or companies mentioned in the article. For more information, please see our Content Disclaimer.

Harsh Singh Chauhan has a wealth of experience evaluating publicly-traded companies across several verticals, including technology, oil and gas, retail, and consumer goods. His financial writing has been published across platforms such as The Motley Fool, TheStreet, and Seeking Alpha. Harsh's philosophy is to find great businesses for the long run based on company fundamentals and industry prospects. Address: 682 Indian Road, Toronto, Ontario, M6P 2C9. Phone: 416-721-8257.


Please enter your comment!
Please enter your name here