Centerra Gold just released their Q1 2024 earnings transcript [1], and amidst the usual pronouncements of strong operating performance and free cash flow generation, something remarkable lurks. While analysts have focused on the gold and copper production from Mount Milligan and Öksüt, a sleeping giant stirs within the Molybdenum Business Unit. Centerra appears to be quietly orchestrating a potential divestment of their molybdenum assets – and this sale could unlock a hidden treasure trove of value for investors.

Here's why this "molybdenum bombshell" might be more significant than anyone realizes:

Langeloth: A Profitable Processing Powerhouse

First, let's look at Langeloth, Centerra's metallurgical facility. The Q1 2024 earnings transcript [1] reveals that Langeloth has undergone a "commercial optimization plan" geared at increasing profitability and evaluating its future potential. While currently operating at only 30% capacity, this optimization has resulted in "commercially more attractive" contracts for 2024. Crucially, Langeloth's profitability is "largely insulated from the prevailing spot price" of molybdenum, clipping a steady $1 per pound processed. This consistent profitability makes Langeloth an attractive asset on its own.

The Thompson Creek Mine: Awaiting Its Revival

Now, couple this with the impending feasibility study for the Thompson Creek mine restart. The study, expected later this summer, will not only detail the reopening plan for the mine, but also provide a more comprehensive picture of Langeloth's operating model when fed by Thompson Creek's concentrate. This is where the potential for a divestment becomes truly intriguing.

Centerra's Strategic Divestment Play

Centerra, according to CFO Ryan Snyder, is actively engaged in a "strategic process" regarding their molybdenum assets, with this process advancing "well." However, the company is strategically waiting for the Thompson Creek feasibility study to provide potential buyers with a full understanding of the combined value proposition of the mine and Langeloth operating at or near full capacity. [1]

Imagine this scenario: a mine with a fresh feasibility study, demonstrating its economic viability, directly feeding a processing facility with established profitable contracts and the potential for significant capacity expansion. This is a compelling package that could entice a wide range of buyers, potentially sparking a bidding war for Centerra's molybdenum assets.

Unlocking Hidden Value: The Numbers Speak

Here's where the numbers get really interesting. The Thompson Creek feasibility study will undoubtedly provide a net present value (NPV) for the mine. Let's hypothetically say this NPV is $500 million. Add to that Langeloth's value, which, given its consistent profitability and expansion potential, could conservatively be estimated at another $200 million. This would bring the combined value of Centerra's molybdenum assets to a hypothetical $700 million.

Now, consider Centerra's current market capitalization of approximately $1.5 billion [2]. A $700 million divestment would represent a significant portion of the company's value – nearly half. This injection of cash could be used for a variety of shareholder-friendly actions, including:

Supercharging the Mount Milligan expansion: The cash infusion could fuel the development of the identified resource base at Mount Milligan, potentially transforming it into a multi-decade cornerstone asset.

Aggressive share buybacks: Centerra has already been active in share buybacks, but the divestment could allow for a much larger program, significantly reducing the share count and boosting earnings per share.

Special dividends: Centerra could reward shareholders directly with a substantial special dividend, providing an immediate return on their investment.

Visualizing the Impact: Cash Flow Comparison

To illustrate the potential impact of the molybdenum divestment, let's compare the free cash flow generated by Centerra's operating segments in Q1 2024 [1]:

As you can see, the Molybdenum Business Unit is currently a drag on Centerra's cash flow. Divesting these assets could eliminate this drag and provide a substantial cash injection.

A Value-Unlocking Event on the Horizon?

The potential for this "molybdenum bombshell" to reshape Centerra Gold is undeniable. While the feasibility study and details of the strategic process are still pending, the current transcript offers tantalizing clues that a major value-unlocking event could be on the horizon. Investors would be wise to closely monitor developments in Centerra's Molybdenum Business Unit – it may be about to steal the show.

"Fun Fact: Molybdenum is a remarkable metal with incredible strength and heat resistance. It's used in a wide range of applications, from strengthening steel to powering high-performance engines. It's even found in some vitamins and enzymes!"