Centamin completes ‘reset’ in time for gold rush

Centamin (CEY) has finished a three-year effort to cut costs and restore confidence in its mining ability in time to get “full exposure” to the current gold price highs, the chief executive has said. The company reported a one-quarter increase in cash profits for 2023, to $398mn (£311mn), in line with analyst forecasts. The gold price hit $2,220 an ounce (oz) overnight after the US Federal Reserve said it was likely to cut rates three times this year. 

The Egyptian miner hit production guidance for 2023, with output of 450,000 oz of gold. This was a 2 per cent increase on the year before. The all-in sustaining cost (AISC) came in 14 per cent below 2022, at $1,205 an oz, helped by a drop in spending compared with 2022. 

Centamin boss Martin Horgan said the 2¢ final dividend, which saw the payout fall compared with last year, was driven by “prudence” given the company has to fund exploration and development this year. He said there would be headroom for an increase next year. More growth plans are on the way, however, which could draw the board’s attention. Centamin has in the past been penalised by investors for its single-mine portfolio and so building a new operation has long been a goal. 

The Doropo project in Cote d’Ivoire is the first cab off the rank, and a new study is due out this year. The cost will be in the region of $350mn, Horgan said, so the question is whether to direct cash from Sukari or to lean more on project financing. The company has no drawn debt currently. 

Cash generation at Sukari would be on the up even without the surge in the gold price. Centamin has a solar plant up and running that will cut power costs, and later in the year a grid connection will reduce electricity spending further. Production is also forecast to climb by at least 20,000 oz compared with 2023, with guidance set at 470,000 to 500,000 oz. 

As always, the company’s net income is around half of its pre-tax profits due to the profit-sharing agreement with the government, which saw it hand over $112mn for 2023, up from the $35mn that covered 2022. Broker Peel Hunt forecasts a 12 per cent increase in Ebitda for 2023, to $446mn, although doesn’t see the dividend increasing this year. 

Sukari is in a good state and further operating cost reductions should bring on a larger uptick in cash profits than analysts are expecting for this year. Buy. 

Last IC View: Buy, 98p, 26 Jul 2023