CENTAMIN capped a good year paying a 13.5 US cents per share final dividend, described by Investec Securities as “stellar”, and taking the full dividend payout to 15c/share, equal to 70% of free cash flow.
Centamin said in 2016 that it would follow a dividend policy of paying 30% of free cash, but on January 9, Andrew Pardey, CEO of Centamin, dropped a major hint that this could be heavily exceeded.
“It is great to see a company use its excess cash flows to reward shareholders and Centamin can also afford to,” said Investec in a morning note. Centamin ended the 2016 financial year with cash and liquidity of $428m – an increase of nearly $100m than the $332m record at its interim results.
Shares in the company were up just over 3% in mid-morning trade on the London Stock Exchange, but on a 12 month basis the share is 72% higher. The company, which mines from a single asset – the Sukari gold mine in Egypt – is valued at £1.84bn.
Commenting on the company’s dividend policy, Centamin chairman and backer, Josef El-Raghy, raised the prospect of another generous payout in the current financial year.
“This policy and the proposed full year payment for 2016 reflects our commitment to maintain strong fiscal discipline in managing our existing portfolio of assets, and to return to shareholders any cash reserves above those required to sustain Centamin’s value-driven growth strategy,” he said.
The key to Centamin’s performance has been achieving successive improvements in gold output at Sukari – 2016 represented its seventh successive year of production growth – which has helped the company make in-roads to its all-in sustaining costs (AISC).
It has guided to production of between 540,000 to 580,000 ounces in the current financial year at an AISC of $790/oz which Investec said “looked comfortable, supporting future dividends”.
Sukari produced 551,036 oz in the 2016 financial year, above guidance of 520,000 to 540,000 oz. AISC came in at $694/oz which is far improved on the $885/oz achieved in the 2015 financial year and in excess of the $720 to $750/oz guidance.
The outcome was earnings before interest, tax, depreciation and amortisation of $373m, a 145% increase on its 2015 financial year which was also assisted by an 8% increase in the gold price received which averaged $1,256/oz in the 2016 financial year.
El-Raghy said the company expected to delineate more reserves as it continued with the development of the underground section of Sukari whilst pressing on with development projects in Côte d’Ivoire and Burkina Faso.
Some $25m had been set aside for exploration in 2017 while $11.5m would be spent extending reserves at Sukari. An updated reserve and resource statement would be published during 2017, said Pardey.
Centamin’s 2016 performance seals a remarkable comeback following the period between 2011 and 2012 of the Arab Spring which saw Egypt’s government changed twice and the company’s share price hammered by extreme political risk factors.
