My favourite two gold stocks are AIM-listed Ariana Resources (AAU) and fully-listed Centamin (CEY). Both operate in far flung fields – Turkey in the former’s case, and Egypt in the latter’s – and both are producing gold. Of course, Ariana is amongst the tiddliest tiddlers and Centamin hasn’t so far to travel before reaching consideration for the FTSE100 (I wish!) so there is the world of difference between the two. But Ariana has been a long-term tip for me, joined by Centamin this Christmas. Gold has been the place to be so far this year, and the rally which started last summer shows little sign of slowing down. There had been concerns that the relatively weak post-financial crisis recovery was starting to run out of steam, which saw the Fed take a hatchet to interest rates. That was the kicker gold needed and whilst one might have imagined further cuts down the road, I had rather assumed that the Fed would be keen not to move rates in the run up to the US election later this year. So perhaps it was to be a waiting game, at least for a while. That has all changed with the coronavirus. Now the Fed has chopped rates by another half a per cent and I reckon it will cut again at its next meeting. Meanwhile, financial markets have been in at least partial meltdown as investors worry about the effects of the virus on global growth which has led to choppy trading in gold. But gold put in an 8-year high on Friday nonetheless and it seems to me that only a fool would rule out further rises from here.
As gold producers, Ariana and Centamin have been reaping the benefits of the higher gold price. The result for Centamin shareholders has been increasing dividends and a higher share price. Indeed, the stock broke through my initial target of 150p briefly, before settling back. But if gold is set to go higher then I believe there is plenty more to come here and thus would suggest it gets on to the shortlist of potential buys for readers. And there could be a boost around the corner, as Centamin’s FY19 results are due. Last year they came out on 25 February, followed by audited numbers and the annual report on March 7. I would imagine that the new board of Centamin will want to shout of its progress from the rooftops and underline the cashflow in the face of the increased gold price. The bad news is that the FY dividend payout goes ex- in May this year, as opposed to April last year. So maybe we will see unaudited numbers very soon but audited numbers look a little way off.
Ariana is much smaller, but the action could be decisive in the coming days as the deadline to get its proposed corporate action whereby it reduces its ownership of the Red Rabbit and Salinbas projects to 24.5% in return for $30 million falls at the end of the month. But it will need shareholder approval and thus an EGM will be needed before then – so we could see news on that this week. Of course, the proposed partner may have got cold feet or they simply agree another delay (having already agreed one last month) but my sneaking suspicion is that the deal will be done and the EGM called. My back-of-an-envelope suggested that the deal values Ariana’s assets, including the cash to be paid, at around 4p per share and thus at below 3p there looks decent short term potential. But that assumes the deal gets the nod. So if you are a gambler, then you can place your chips now.
I have been a seller at over 3p, however, because my holding had got too big and my natural caution kicked in. I still hold the majority of my shares (and the holding is still too big!). My other concern had been if the proposed deal does not progress then perhaps the 3p mark currently being troubled by Ariana may prove too much in the short term. On the other hand, Ariana has delivered in spades thus far and, having been buying as low at 1.1p, I’ve more or less trebled my money on those. And with the bank almost paid off at the Kiziltepe plant, it looks set to have far more cash to play with going forward, has the Salinbas prospect firmly in focus and is taking an interest in a gold venture in Cyprus. So longer term even without the proposed deal there is plenty of upside to go for. But I want to see the deal go through: it would accelerate Ariana’s plans and the company has already indicated that a dividend will follow completion – all of which will surely spur the shares higher. Thus my thinking for those less inclined to gamble is that if the price drops much below 3p, then take the opportunity. And if the deal comes then 4p will surely be on the cards at least so those quick enough to take advantage of news could do well. But if the gold bull really gets going then both Ariana and Centamin will prove excellent plays – and that is why I have invested.
Filed under: Ariana Resources, Centamin, oil price, Safestay, Dev Clever, Bowleven, Tesco, M&G
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