Fully-listed Egyptian gold-producer Centamin (CEY) has released its Q2 report, with the good news that all seems on track to meet full-year guidance as the company continues its recovery from the ground movement issues last autumn and an interim dividend is on the way.
In the wake of the ground movement issues revised guidance was issued for this year to take account of the temporarily lost higher-grade open pit resource where the ground movement was detected. FY guidance for 2021 was for 400,000–430,000 oz of gold production at a cash-cost of $800-900 per oz and all-in costs of $1150-1250 per oz. The first half delivered 204,275oz at a cash-cost of $807 per oz and all-in costs of $1186. So far, so good – and we are reassured that the company remains on track to meet full-year guidance. There were a few bonuses too: open pit material movement hit a record in Q2, ahead of schedule, and capital expenditure was positively impacted by some spending being deferred to Q3 whilst waste-stripping was ahead of schedule. In cash terms, the company ended Q2 with cash and liquid assets of $312 million, a slight improvement on FY20’s figure of $310 million, after dividend and government distributions. In terms of free cash-flow, Q2 saw a better-than-budget figure of $6.9 million and $16.3 million over H1.
This reads well to me: no nasty surprises, all on track and we are told that the company looks forward to announcing interims to June and declaring the interim dividend in just two weeks’ time on August 5th. This, of course, confirms there will be an interim dividend and we were previously promised $105 million in dividends for the current year. My assumption is that it will be split as 3 US cents for the interim payment and 6 US cents at the full year as gold production continues to recover.
That means a prospective dividend yield of more than 6% which is already very attractive, but with production due to improve in the coming years, costs due to fall and an encouraging gold price environment, I suggest there will be plenty of room to increase dividend payments going forward. As such, the shares are a buy just for that tasty dividend. But as the company gradually restores market confidence by meeting or exceeding guidance the shares will surely rise to bring down that dividend yield. I would have thought a yield of 4% would be attractive if Centamin keeps to the straight and narrow road of meeting guidance – and that already implies a share price rise to over 160p. And if production rises to plan and costs fall the resulting higher dividend will offer a second kicker. As each quarter goes by and Centamin sticks to the script a re-rate will come. There are risks – including single asset, single country (although that may well change) but this is too cheap. Buy.
Filed under: Centamin, Zak Mir investment company, The High Street Group, Rurelec, Itaconix, Ariana
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