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Centamin leadership promises dividends and discipline

Production was down and capital costs rise ahead of analyst expectations in gold company forecasts out to 2023
December 4, 2020
  • Final dividend will be 3c per share 
  • Gold production will be sub-500,000oz until 2024 at least
IC TIP: Buy at 123p

Rigour and discipline are Centamin’s (CEY) new buzzwords, under a new chairman and chief executive. Investors will probably pay more attention to the 3¢-a-share final dividend and drop in production in the coming years compared to the 2019 level. 

At a capital markets day this week, chairman Jim Rutherford said shareholders were looking at “a new Centamin” where rigour and discipline would rule the roost. Chief executive Martin Horgan, who started in April, said the gold miner would go for a value over volume approach, hence the sub-500,000-ounce (oz) production for the next three years. 

RBC analyst Tyler Broda said the long-term guidance of 450,000-500,000oz a year was “disappointing”, compared to his own estimate of 525,000oz. Production has dropped this year because of concerns over the stability of part of the open pit. 

The cost per ounce will climb next year as well, to $1,150-1,250/oz (£853-£927), compared to the forecast of $950-1,050/oz this year. This cost estimate is for the all-in sustaining cost, which includes capital costs. 

These will jump next year as Centamin gets a better grip on the Sukari underground operation and changes the way it operates in the open pit. To this end, mining contractor Capital (CAPD), formerly Capital Drilling, will come in to provide waste stripping services, in a deal worth up to $260m over four years. 

In the investor update, Centamin also said it would pay out total dividends of at least $100m for 2021, and committed to its existing dividend policy of 30 per cent of free cash flow going to shareholders. 

If the consensus estimates are right, the miner will be paying out far more than 30 per cent next year, as analysts forecast free cash flow of $117m in 2021. A further drop in gold prices could squeeze this further, although the company has paid out all of its free cash in the past

Though higher spending and lower production obviously dent the near-term earnings outlook, there are also bright spots. The company will cut costs and has committed to training up locals at Sukari to cut the dependence on expat workers, which will be positive for its government and community relations. It is still debt free and has good options for growth at Sukari and in West Africa. Buy at 123p. We also have a buy rating on Capital, at 61p. 

Last IC View: Buy, 154p, 7 Oct 2020 (Centamin) 

Last IC View: Buy, 30p, 19 Mar 2020 (Capital)