Shares in gold miner in Egypt Centamin (CEY) are down sharply on what is bad news. But the market has over-reacted in a big way and since we also expect gold to head higher in the run up to Christmas, this looks a great trading buy. The news is that “it has detected movement in a localised area of waste material in the Sukari open pit Stage 4 West wall and has decided to immediately defer open pit mining operations in this zone... the company's preliminary estimate is that production for the fourth quarter will be reduced to circa 70,000 ounces”. We had been expecting 135,000 oz and the grades on the reduced output will be lower so the cash cost per ounce goes up. But this is just one quarter. As of next year, it is back to plan and “measures to stabilise movement in the affected area have already been implemented. In addition, the company has commenced a detailed geotechnical assessment, which is focused on developing a plan to mine the impacted area… Underground mining has not been affected and will continue as planned.”...
The Sukari gold mine has been in operation for ten years and, with a 10.3 million ounces gold resource base, is long life, bulk tonnage open pit and underground. There is also plentiful exploration potential still with a 160km2 tenement area and some other projects – the company also previously updating on Q2 “on its two principal projects in Côte d'Ivoire… At Doropo, in H1, approximately 28,000 metres of step-out and infill RC drilling had been completed on several of the Doropo prospects including over 15,000 metres along the 10km long Kilosegui structure. The main drilling works planned for 2020 will be completed during Q3 with the objective of carrying out a Mineral Resource Estimation update by year end. At the ABC Project… in H1 approximately 2,300 metres of core drilling has been completed on the southern zone along the Lolosso corridor. Drilling data from the last 18 months of exploration at ABC will be incorporated into a Mineral Resource Estimation update scheduled for completion by year end”. However, it is currently Sukari which remains key...
The company’s half-year results noted gold production +9% to 256,084 ounces, with all-in sustaining cost 4% lower per ounce to $899 and average realised gold price up to $1,657 per ounce. There was a pre-tax profit of $191 million on revenue of $449 million, with even after particularly profit share and dividend payments (the latter more than $69 million), cash +$43 million to $321 million. There were $151 million of other current assets (-$17 million) and $75 million of total liabilities ($6 million reduced). The results added “full year production guidance of between 510,000-525,000 ounces of gold”. The latest includes “preliminary gold production for the three months ended 30 September 2020 was circa 120,000 ounces” and that a previously-announced and “well advanced” 'life of asset review' will include an updated mine plan, with “the high-grade Stage 4 West wall was scheduled to be mined during Q4 2020 and 2021. The area contains circa 90,000 ounces of gold in situ at grades of up to 2.0g/t Au”.
This not now to be so is a bit disappointing, but in the context of the scale of the project doesn’t look particularly significant – yet the shares have responded by knocking more than 18% off a prior £2.3 billion (currently equating to approx. $3 billion) market cap. That was with the shares already down from more than 230p reached in August – and we see gold getting still stronger as macroeconomic reality has yet to really bite. Noting the scale of this latest, that there was a net more than $100 million generated in the first half at $1,657 gold and the dividend (half-year $cents 6 per share). Therefore, targeting a return to well above 200p as the latest is shown as of little long-term significance to the Sukari project and as the gold price moves forward, buy.
Filed under: Centamin, Versarien, Tim Martin, Skinbiotherapeutics, Catenae Innovation, HotStockRockets
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