Venture: Mid Cap Gold Miner
Issue 7;
A cash-generative gold miner with a low valuation and a strong balance sheet.
Centamin (CEY)
CEY is a London-listed gold mining company with operations in Egypt. They aim to produce 500,000 ounces per year, with costs below $1,000 per ounce. It is a very simple-to-understand business, with one large asset, the Sukari Mine. In my opinion, there is so much focus on political risk (Egypt) that they keep all else as plain as possible.
“Centamin's principal asset, the Sukari Gold Mine, is a long-life, bulk tonnage open pit and underground operation. It began production in 2009 and is the first large scale modern gold mine in Egypt, as well as one of the world’s largest producing mines, forecast to produce in excess of 400,000 ounces per annum with a 12-year life of mine.”
It reported today and missed expectations slightly, but CEY is undervalued, so the price hardly fell. Peel Hunt analyst Peter Mallin-Jones said,
“The 3Q performance reinforces the sense from the life of mine presentation that many workstreams have come together to make the Sukari mine a significantly more efficient operation than it has been in the past.”
The political risk is perhaps overstated because they have had a good working relationship with the Egyptian Government and have paid them royalties for many years. It is a good working relationship, the CEO told me at the Denver Gold Conference in Colorado a few years ago. The mine is also in the south and a long way from today’s regional troubles.
Centamin Grows Production on a Low Valuation
The expected dividend yield is 4.3%. The payout was higher in 2020 when gold was high, and costs and oil were lower. Miners cannot escape higher costs, but of course if gold rockets, then the fixed costs remain fixed.
The PE is 7x for next year, with the 10 brokers (7 buy, 3 hold) looking for a 129p consensus target. The upside is 56% before accounting for strength in the gold price. Free cash flow was £86m to June ’23 (expected £126m ’24), with a market cap of £1.1 billion and £96 million of cash. It’s a strong balance sheet.
The company has good capital discipline, with no capital raising other than share awards to management.
Risk
This is a simple way to outperform gold in a bull market. Should that fail to materialise, then I expect CEY to fall less than other gold mining stocks. It is a FTSE 250 mid cap stock. It is quite liquid for its size, trading circa £4m per day. It is debt-free. The primary risks are geopolitical because it’s in Egypt, but I reiterate it is a long way from the conflict zone around Israel. The other main risks are the gold price and input costs, such as the oil price. I deem this to be medium to high risk.
Venture Update
CEY price is 83.35p as I write. I shall change that to today’s close next time.
The bond crisis has knocked the stockmarket, especially small and mid-cap stocks. I will carry on making recommendations regardless of the macro. In all cases, prices should be low enough to deliver good outcomes over the medium term.
Please let me know your thoughts by emailing me at charlie.morris@bytetree.com or tweeting me @AtlasPulse.
Many thanks,
Charlie Morris
Editor, Venture
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