The actual results from Centamin (CEY) are almost irrelevant, there might be a whopping increase in profit here but the issue is the ground movement which forced suspension of relatively higher-grade open pit mining and has reduced production and increased costs as a result. The first thing I wanted to see was news of the dividend – and, as promised, the company is indeed to pony up 3 US cents per share. Given that the price of gold has been slipping, oil is up and the effects of Covid have not helped, this is good news. Helpfully, the company also again promises $105 million in dividends for the 2021 year. My sense is that means a further 3 US cents at the interim stage, followed by 6 US cents in a year as gold production recovers. The second thing I wanted to see was no further nasty surprises with regard to the ground movement reported last October.
I am happy to say I haven’t found any – indeed the company has announced an unchanged outlook, promising 400,000 – 430,000 oz of gold production for this year. So, tick. The ground movement issue – and the historical lack of “operational flexibility” was again mentioned, and the company emphasises that its forward plans address this issue which should add much-needed confidence to what is promised. It will take some time for the market to fully reflect that in the share price, but it looks to me as though the company is certainly heading in the right direction. The one thing I did not see was a date for resumption of open pit mining at the area affected by ground movement last October, which is a pity. However, we were previously told that it would be during 2021 and the company has offered no further guidance, meaning that all appears to be on track – supported by the unchanged outlook.
Overall this is positive, but much depends on actual delivery. Promises are one thing, but the relatively new management team needs to put previous disappointments to bed by doing what it said it would on a consistent basis. If that happens, the shares will re-rate for that – and the increased cashflow resulting. As far as I am concerned, there is every reason to hold - and indeed to buy - on this news as we await that re-rate but for now Centamin’s shares are broadly unchanged. Clearly the market wants more evidence before trusting what the company says! But that, in my view, coupled with what I believe is a very positive gold environment, is the opportunity here for private investors.
So my stance is BUY for recovery, with an initial target of 172p per share (with gold at around $1740) and longer term £2+ per share if and when the gold bull returns. Once the market smells delivery, I believe the re-rate will be sharp. And in the meantime we loyal shareholders can continue to enjoy a 6% yield while we wait.
Filed under: Centamin, [email protected] Capital, Chris Cleverly, Simec Atlantis Energy, SpaceandPeople
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