What's new: ■ Blasting supplies resumed ■ Annual output guidance maintained ■ Record quarterly plant throughput
Centamin Egypt announced third-quarter results that suggest it has overcome the problems it had experienced earlier in the year with securing blasting products for its Sukari gold mine. Centamin's shares tumbled by nearly a quarter in early August on news of the operational restrictions and the resultant full-year production downgrade from 250,000 to 290,000 ounces (announced in February) to 200,000 to 210,000 ounces.
With the resumption of regular delivery and issuing of blasting products in late July, production rates at the open pit and underground have returned to their budgeted levels. Total gold production for the quarter was 50,539 ounces, which is a 67 per cent increase from the corresponding quarter last year and 5 per cent improvement on the previous quarter.
Output was further underpinned by record quarterly throughput in the processing plant of 964,000 tonnes, which was 59 per cent higher than the corresponding quarter last year and 13 per cent higher than the previous quarter. Higher throughput follows the successful commissioning of the secondary crushing circuit, which provides flexibility for continuous operations. Crucially for the company's credibility, it remains on course to deliver its revised target of 200,000 to 210,000 ounces of gold for the full year.
Evolution Securities says...
Add. Centamin produced 50,539 ounces of gold during the quarter, a 5 per cent increase on the second quarter. Post the blasting issues which the company faced, underground and open pit production rates returned to budgeted levels in July. The most important part of today’s release is that Centamin has reiterated its previous gold production guidance of 200,000 to 210,000 ounces at a cost of $550/ounce. The group will need to produce at least 57,000 ounces in the fourth quarter, but this doesn’t seem too much of a stretch given that the blasting issues have now been resolved.
RBC Capital Markets says...
Outperform. Centamin's share price has been negatively impacted by the political upheaval in Egypt during 2011. The interim military regime appears to have been supportive of the company to date and acted to resolve the issues it faced with local blasting officials in the second quarter. In our view, any new administration is likely to want to encourage foreign investment into the country. The next major political catalyst should be the first stage of the parliamentary elections, currently scheduled for 28 November. Our target price of 180p remains unchanged and we retain both our outperform recommendation and speculative risk qualifier.
Despite Centamin's operations suffering little from the political unrest that hit Egypt in January and February, its shares took a beating from first the revolution and then the production setback. Though comfortably up on the 82p at which we advised buying them (22 May 2009), at 103p the shares continue to look oversold. The religious clashes of recent days add a further area of potential concern, although successful elections in November would go a long way to derisking the upside from what remains a substantial gold operation. Buy.
Last IC view: Buy, 108p, 2 August 2011
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