In a May 17 research report, CIBC analyst David Haughton noted that Centerra Gold Inc. (CG:TSX; CADGF:OTCPK) agreed to divest of noncore assets for $200 million to Triple Flag Mining Finance Bermuda. These assets, which Centerra had acquired from AuRico Metals late last year, include AuRico's royalty portfolio, 0.5%, 2% and 2% net smelter returns (NSRs) royalties on Kliyul, Chuchi and Redton, respectively, and a Kemess project silver stream.
The transaction, slated to close in Q2/18, "helps strengthen Centerra's balance sheet, and further supports the ramp-up of Mount Milligan and advancement of projects (Öksüt, Gatsuurt, Greenstone and Kemess)," Haughton added, which "are expected to carry the weight for a rerating of the stock. As of March 31, 2018, Centerra had $120 million in cash and $335 million in undrawn credit facilities.
According to the deal terms, for the royalty portfolio and the NSRs, Triple Flag will pay $155 million in cash up front. This price exceeds the value that CIBC had previously placed on AuRico's royalty portfolio, which was $127 million, reported Haughton.
For the stream of 100% of silver production from the proposed mine at Kemess, Triple Flag will pay $45 million in advance, in tranches of $10 millin, $10 million, $12.5 million and $12.5 million on certain project development dates, along with 10% of the market price for each silver ounce produced. Haughton indicated that Cowen values Kemess "at $380 million using spot at 5%."
CIBC has a Neutral rating and a CA$9 per share price target on Centerra, whose stock is currently trading at around CA$7.25 per share.
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Disclosures from CIBC, Centerra Gold Inc., May 17, 2018
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Each CIBC World Markets Corp./Inc. research analyst named on the front page of this research report, or at the beginning of any subsection hereof, hereby certifies that (i) the recommendations and opinions expressed herein accurately reflect such research analyst's personal views about the company and securities that are the subject of this report and all other companies and securities mentioned in this report that are covered by such research analyst and (ii) no part of the research analyst's compensation was, is, or will be, directly or indirectly, related to the specific recommendations or views expressed by such research analyst in this report.
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Equity research analysts employed by CIBC World Markets Corp./Inc. are compensated from revenues generated by various CIBC World Markets Corp./Inc. businesses, including the CIBC World Markets Investment Banking Department. Research analysts do not receive compensation based upon revenues from specific investment banking transactions. CIBC World Markets Corp./Inc. generally prohibits any research analyst and any member of his or her household from executing trades in the securities of a company that such research analyst covers.
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Important Disclosure Footnotes for Centerra Gold Inc. (CG)
· CIBC World Markets Inc. expects to receive or intends to seek compensation for investment banking services from Centerra Gold Inc. in the next 3 months.
