The following came from Canaccord on Nov 12, 2012:


Centerra Gold (CG : TSX| BUY, Target C$18.00)

Q3/12 in-line, Q4 to be windfall; Kumtor pit redesign improves valuation; maintain BUY and increasing target to C$18.00


We reiterate our BUY rating on Centerra Gold following the release of Q3/12 results and reserve update including a revised open-pit mine plan for Kumtor. Our BUY rating is based on relative valuation, implied return to target, and our view of low likelihood of change in ownership structure of Kumtor.


Investment highlights

Q3/12 adjusted fully-diluted EPS was $(0.12) versus our estimate of $(0.12) and consensus of $(0.21). Unadjusted EPS was reported as $(0.20), which included $0.08/sh of abnormal mining costs related to the removal of glacial ice.


Consolidated gold production was of 42,723 oz (sales of 41,251 oz) at total cash costs of $1,401/oz vs. our 44,404 oz at $1,373/oz. Production at Kumtor was lower due to lower grades, partly offset by stronger production at Boroo on higher than expected grades.


The company released a Kumtor reserve update including a revised mine plan which removed the underground component in favour of a larger pit. We estimate that the revised mine plan is accretive to our $2,000/oz peak gold NAV by approximately $2.90/sh.


2012 gold production guidance has been revised to 415,000-425,000 from 450,000- 470,000 oz due to lower guidance at Kumtor partly offset by better expected production at Boroo. As a result of revised guidance, our 2012 EPS estimate has been revised to $0.77 from $0.98 previously.



Our target price has been revised to C$18.00 from C$16.50 based on 0.65x our 5%/peak NAVPS estimate of US$28.06 (from US$25.44), assuming USD/CAD parity.


Upcoming potential catalysts

Update on Kyrgyz Parliamentary, State, and Interagency Commissions’ findings on Kumtor (mid-November 2012E)


Ongoing exploration results at Kumtor Underground, Boroo, and ATO


Investment risks

The typical risks associated with any mining investment include commodity and exchange rate risk, permitting and technical (development/operating) risk.


Country/political risk is higher than average given the company's operational jurisdictions in Kyrgyz Republic and Mongolia (including the risk of operating permits being revoked at Boroo, unsettled compensation claims at Boroo and the risk associated with completing a stability agreement at Gatsuurt). Generally weak ground conditions at Kumtor are a source of operating risk and could be a limitation to future potential underground mining at this mine.


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