Exposure To Country Risk: The Centerra Gold Edition

May.21.13 | About: Centerra Gold (CAGDF)

Centerra Gold (OTCPK:CAGDF) is a dividend-paying mid-tier gold mining company operating the Kumtor mine in the Kyrgiz Republic and the Boroo mine in Mongolia. The company has several projects in various stages of development spread throughout Asia in Mongolia, Russia, and Turkey. The market capitalization of Centerra Gold stands at $834M and the forward P/E is listed as 1.8 only on Morningstar.com. Centerra's share price has dropped from over $20 early in 2012, to $3.55 at the time of writing. The table below gives the 2012 numbers for attributable production, reserves and resources at each of Centerra's mines and projects.

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In a series of recent articles we have collated country risk ratings for numerous countries from eight different sources and averaged these ratings into compounded country risk scores. Our compounded country risk ratings range from 0 to 100 with low numbers indicating low risk and high numbers indicating high risk. The most recent results from this work can be found in this article.

Most definitions of country risk include factors such as political risk, exchange rate risk, economic risk, sovereign risk, transfer risk, socio-economic risk and others. Depending on the source, various contributing factors of country risk are weighted differently. Readers interested in the specific definitions are encouraged to follow the links to our sources given in this article.

Consolidating the production and reserve data showing summations for each country of exposure results in the table below. The data are already calculated in percentages of gold-equivalent ounces. Country risk ratings as documented here are also shown in the central column of the table. The right side of the table shows the weighted risk contributions for each country separately for production, reserves and resources with summarized scores in the bottom line. The individual ratings can be interpreted as ratings going from present risk (production) into the future (inferred resource).

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Centerra Gold operates in jurisdictions with some of the highest country risk in the world, which is reflected in the computed country risk ratings. Based on production and reserves statistics the country risk ratings for Centerra Gold are 77.35 and 77.92 respectively. These ratings rank among the highest in the gold mining sector and only Randgold (NASDAQ:GOLD) has shown higher country risk ratings (production: 80.72; reserves: 77.81) among the gold miners evaluated in our series of articles so far.

Owing to projects in Turkey, and Russia, the country risk ratings using resource data drop off to 69.74 for measured & indicated and 72.24 for inferred resources.

Exposure to country risk is very high for Centerra Gold investors, but so are the possible rewards. Judging from the share price performance during the past two years some of the country risk has played out and Centerra Gold is presently for sale at very depressed levels.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.