Gold miner in Egypt Centamin (CEY) - in which Tom Winnifrith owns shares - announced results for the 2020 calendar year emphasising “record revenue of US$829 million… generated significant free cash flow, of US$142 million, a 91% increase, making it possible to propose and pay dividends attributable to 2020 of US$104 million” but also ‘impacted guidance’. The latter was with gold production of 452,320 ounces at $1,036 all in sustaining cost (AISC) per ounce sold comparing to prior guidance of 510,000-525,000 ounces at $870-920 AISC (and a prior year 480,528 ounces at $943 AISC) – it noting financial gains due to pricing (average up to 1,766/oz from $1,399/oz in 2019) and operating efficiencies and productivity ($44 million of gross costs removed, as part of ongoing $100 million cost-saving target by 2024). However, those factors can clearly not be relied upon going forward.
The company reiterates that the operational performance was due to a “safety-related decision in Q4 to temporarily suspend mining in a section of the open pit”, with that leading it “to mine in the lower-grade… area of the pit… Improving mine planning to increase confidence in forecasting while increasing operational flexibility is a key focus for the company”. However, this currently means the outlook for 2021 is 400,000-430,000 ounces at $1,150-1,250 AISC per ounce sold. That outlook is unchanged since the last statement.
Despite particularly $139 million of equity dividends paid (with also $0.03 per share, $34.7 million, proposed to be paid on 15th June with an ex-divided date of 20th May), cash (net) still increased by $13 million to $291 million. Other current assets were $23 million lower to $146 million and total liabilities $26 million higher to $106 million, with “the board reiterates its intention to recommend a minimum 2021 dividend of US$105 million (interim and final)”. That dividend equates to just over $0.09, currently circa 6.5p, per share and the company “looks forward to communicating our future progress throughout the year and beyond” – the mine planning/operational flexibility developments. That looks to have the potential to spark these shares which are slightly up from recently close to 100p but which were above 200p as recently as the start of October and which at a current circa 105p to buy capitalise the company at £1.21 billion.
With the free cash flow potential from positive operational and/or gold price developments and prospective 6%+ dividend yield (we note $0.10 per share was paid for 2019 with the much lower gold price), we continue to target a return towards a 200p share price. We see no reason why, if gold heads higher as we expect, the dividend could not head to well over 10 cents in 2022. If Centamin delivers as we expect and regains investor trust the yield will, we think, fall well below 5%. The shares are therefore a recovery buy.
This article first appeared on the N50 website which Tom Winnifrith runs with Steve Moore & Lucian Miers. To access the website ahead of the next share tip from Tom & Steve OUT THIS AFTERNOON and a new shorting piece this week click HERE
Filed under: Centamin, SkinBioTherapeutics, Verditek, Tui, Kore Potash, N50 website
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