Down days and politics won’t take shine off divi-hero Centamin.15 Jul 2020 21:23
Gold miner polishes its payout crown.
(this article is dated 13th of July. Apologies if it’s been posted already)
Centamin, the UK’s largest listed pure-play gold miner, is testament to the allure of shiny yellow metal.
The shares are up nearly 70 per cent in a year, with most of the rise coming since rival Endeavour of Canada abandoned its £1.5bn all-share bid in January.
The gold price, now above $1,800 an ounce and close to a nine-year high, clearly helps. Bling hunters may not be able to get to the shops but investors are piling into ingots and gold-backed exchange traded funds as a haven from falling real interest rates.
But Centamin has outperformed its fellow gold diggers over one, five and 10 years. The group, whose main asset Sukari is in the Nubian Desert near the Red Sea, appears to have put the production disappointments of 2018 behind it.
The latest quarter to the end of June was certainly better than most analysts had forecast, as was the quarter before that. In part, production benefited from fewer down days. The group postponed maintenance to keep manpower down during Covid-19. But it also managed to put more of its higher-grade ore — a profitable 6g-plus per tonne — from its underground mining operations through the mill.
Cash costs of production at $600 an ounce, and all-in costs of production at $900 per ounce sold, were at least in line if not better than forecasts.
The next few months may be a tad harder. Down days will increase in the next quarter as maintenance routines resume. The group has shaved back guidance for full-year production to 525,000 ounces, tops.
There are dangers aplenty, as with all miners extracting nuggets in extreme geographies where governance and politics can play havoc with budgets. Centamin is essentially a play on a single asset in the desert. New boss Martin Horgan, recruited as chief executive in April, may decide to plunder the war chest to diversify into other regions. But for the moment, the mining engineer is stuck behind a desk in north London and well aware of the sector’s history of ill-judged acquisitions at the top of the gold cycle.
As mining goes Centamin is a high-quality business with no debt and free cash flow touched $100m in the first half. That makes the dividend — set at 30 per cent of free cash flow — look safe enough for now. And that in turn makes Centamin shares like gold dust to dividend-deprived shareholders.
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