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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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.