Centamin (CEY) has a sense of renewal about it this year. The miner is putting the operational problems that have dogged it in the past two years behind it, and has a new chief executive in Martin Horgan, who ran private miner Toro Gold until it was bought out by Resolute Mining (RSG) last year.
Gold miners have good reasons to be bullish on further rises. The conditions in which gold falls - interest rates rising, trade improving - look a long way off. Hedge fund Elliott Management recently stated that current central bank buying was a “fanatical debasement of money”, while adding that gold had plenty more to run, according to the Financial Times.
With the possibility of cash flow jumping again this year, Centamin’s choices are vast. Berenberg has cash flow for 2020 at $471m (£381m) on current prices around $1,700 an ounce (oz), jumping to $545m at $1,900 an oz, compared to its 2019 forecast of $295m. It has no debt to pay down, and liquid assets of $379m as of 31 March.
Speaking just a few weeks after starting, Mr Horgan told the Investors Chronicle that he would put the “sacrosanct” dividend before any dramatic expansion moves. Centamin’s commitment to the payout was shown by the 100 per cent of free cash flow it handed over to shareholders after a terrible 2018, where production faltered and gold was going for less than $1,300 an oz. The final 2019 dividend of 6c per share has become an interim dividend to avoid a shareholder vote, and will be paid out on 15 May.
Mr Horgan’s appointment brings someone with recent dealmaking experience and increases Centamin’s ties with gold miners in West and East Africa, largely through the Resolute connection.
The Syama owner has a proven interest in buying mines and building sophisticated, efficient operations underground. The company also owns 15 per cent of Orca Gold (Can:ORG), which is developing an open pit project in Sudan similar to Sukari. Mr Horgan said his chief aim was to work out “where we get the best return on a risk-adjusted basis for our expenditure”, be that organic resource growth or investment in a new company or project.
Centamin has already been a target in this consolidation run for gold miners. Endeavour Mining (Can:EDV) tried an all-share deal when gold was at $1,600 an oz around the new year, which fizzled out fairly quickly when no cash was put on the table.
A focus on “risk-adjusted” returns narrows potential suitors or targets. “If you've got a semi-military operation [with] bomb shelters for your staff to work in, the question is what price is an ounce of gold when you're looking at those sort of risks to safety”. The risks are not minor in this sector.
Endeavour was so keen to make a deal it has now merged with Semafo (Can:SMF), which saw dozens of its workers killed by militants in Burkina Faso in November.
The new Centamin chief executive said Mali and Burkina Faso had become more difficult to operate in recently. The miner has exploration sites in Burkina Faso and Cote d’Ivoire.
Cote d’Ivoire is the favoured expansion option, with $3.7m spent there in the March quarter, compared to $310,000 in Burkina Faso. This work will slow in the June quarter, Centamin said, as Covid-19 supply interruptions hit and borders close.
