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Output drop hits Centamin

The Egyptian miner is undaunted by gyrations in the gold price, but should investors be worried about sliding production?
August 7, 2017

As it sometimes reminds us, Centamin (CEY) is “committed” to its 100 per cent exposure to the gold price. No hedging contracts and second-guessing the yellow metal’s price volatility here; for good or ill, the Egyptian miner is an unfiltered, leveraged option for those seeking portfolio diversification.

IC TIP: Buy at 168p

This makes sense on two fronts. For the cynic, hedges might suggest a company is nervous that it can keep costs below market prices. Conversely, their absence tells gold bulls that management shares their confidence in the outlook for the yellow metal. But puts and options matter little when fewer ounces are being produced, as happened at Centamin’s Sukari mine in the first half of 2017.

And although output crawled back in the second quarter to 124,641 ounces – a 14 increase on the year’s first quarter – lower grades from both the open pit and underground mines in the six months to June increased the strip ratio (that is, handling of waste rock). The knock-on effect has been higher costs. Half-year cash costs stepped up to $667 (£511) per ounce (oz), which fed through to all-in sustaining costs of $856/oz, some 23 per cent ahead of the 2016 average.

Numis expects pre-tax profit of $246m and EPS of 12¢ this year, compared with $267m and 19¢ in 2016.

CENTAMIN (CEY)   
ORD PRICE:168pMARKET VALUE:£1.93bn
TOUCH:167-168p12-MONTH HIGH:194pLOW: 115p
DIVIDEND YIELD:7.2%PE RATIO:12
NET ASSET VALUE:121¢NET CASH:$297m
Half-year toTurnover   Pre-taxEarnings perDividend
30 Jun($m) profit ($m)share (¢) per share (¢)
20163281149.842.0
201729267.35.732.5
% change-11-41-42+25
Ex-div:31 Aug   
Payment:29 Sep   
£1=$1.32