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Centamin financials belie mine issues

The gold miner needs a much stronger operating performance in the second half of 2018
August 4, 2018

Centamin’s (CEY) share price has yet to retrace since May’s operational update, when the gold miner downwardly revised production guidance and raised its cost estimate due to lower grade ore at its Sukari mine in Egypt. Management reaffirmed full-year forecasts, with the top end of the range maintained at 515,000 ounces. That appears ambitious given that first half production fell 7 per cent to 217,099 ounces, though “significantly stronger production” is expected over the final six months of 2018, as grades recover.

IC TIP: Buy at 114.4pp

The fall-away was linked to temporary issues with the transitional zone in the open-pit works, exacerbated by problems with the underground drill rig, but the company reported improvements as the second quarter progressed, even as sales outstripped production. Reported half-year profits increased by a third despite a 3 per cent contraction in gold sales, although this was partially mitigated by a 7 per cent rise in average realised gold prices to $1,316 (£1,012) an ounce.

The unit cash cost of production fell 5 per cent to $637 an ounce, placing it within the guidance range of $625 to $640 per ounce, though all-in sustaining costs (AISC) crept up 8 per cent to $930 an ounce. However, the projected step-up in volumes means that AISC are expected to trend downwards to within guidance range of $875 to $890 per ounce over the second half.

Numis expects EPS of 11¢ for the December year-end, rising to 15¢ in 2019.

CENTAMIN (CEY)   
ORD PRICE:114.4pMARKET VALUE:£ 1.32bn
TOUCH:114.2-114.5p12-MONTH HIGH:170pLOW: 108p
DIVIDEND YIELD:8.4%PE RATIO:13
NET ASSET VALUE:111¢NET CASH:$283m
Half-year to 30 JunTurnover ($m)Pre-tax profit ($m)Earnings per share (¢)*Dividend per share (¢)
201729260.01.642.5
201829680.43.882.5
% change+2+34+136-
Ex-div:30 Aug   
Payment:28 Sep   
£1= $1.30. * EPS calculated after profit share with Egyptian government.