08.04
The saying “grade is king” was never more appropriate than at the Kumtor
mine. We estimate that the incremental value for H2 production at $220
million, or almost $1/share, as about 270,000 ounces coming for free. The
calculation assumes a $950/oz gold price and is derived after tax.
Higher grades and recoveries should lead to production levels that are
180% above H1 figures at Kumtor. Operating costs are expected to drop by
more than 40%. We do not think the company will fall victim to shortfalls as
it did last year when a similar potential turnaround was derailed.
Political overhangs have plagued the shares of CG for much of the past two
years. Key differences have been resolved and although one minor one
remains, we expect it too will be handled soon. This would leave only
approval for Gatsuurt as the outstanding issue.
With a higher risk than normal, investors in the current market may shun
participation in unstable jurisdictions. While CG offers excellent value from
all metrics, a limited audience may not propel the shares as much as would
be expected given the dramatic changes coming.
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