Centamin eyes 500,000oz production return

Centamin's (CEY) management is talking up the prospects of raising production in the coming years, setting expectations for short-term higher spending and a lower payout with an eye to greater returns in the future. 

The Egyptian gold miner hit its mark in the 2022 results release, after rejigging its cost marker after the half-year results, while Ebitda for the year was 7 per cent ahead of expectations at $319mn (£265mn). The cash profit margin remains flat, however, the 40 per cent figure well down from the five-year average of 50 per cent. Broker Peel Hunt sees this recovering in 2023, to 47 per cent. 

But the outlook for both the Sukari gold mine and the Doropo development project will largely be the focus for investors in the coming months. Centamin is building a new plant at Sukari and starting expansion work on the underground section of the mine. Capital expenditure will be about $225mn, similar to 2022 once a change in accounting is considered. 

“We spent the past year successfully progressing our reinvestment plan and remain on track to consistently return Sukari to production levels towards 500,000 ounces (oz) per annum from 2024,” said chief executive Martin Horgan. 

Production in 2022 was 441,000oz, a 6 per cent increase on the year before. The all-in sustaining cost per oz sold climbed 13 per cent, to $1,399. Guidance for this year is $1,250-$1,400 an oz, with production at 450,000-480,000oz. 

Earlier this year, the company raised the reserve estimate for Sukari, including a one-third bump for the underground operation, alongside an increase in the open pit's life to 14 years.

Separate to Sukari, Centamin is working on the Doropo project in the Ivory Coast. Investors may remember the prefeasibility study being flagged as a potential catalyst in last year’s results. That remains the case, albeit later than expected. Peel Hunt’s analysts are positive about the impact of this study on the share price: “As more details emerge on Doropo the value ascribed (just 11p in our target price) is also likely to increase significantly.”

All this work has a price. Centamin has taken out a $150mn revolving credit facility (undrawn so far) that will fund the Sukari work. The language around the dividend has also changed – last year, the company set a minimum total payout of 5¢ but it has not published a similar floor for 2023. 

Despite the lower payout, the Ebitda margin and growth prospects are enough to keep us invested here. Buy.

Last IC View: Buy, 90p, 4 Aug 2022