Centamin embarks on “long march” as it rebuilds faith in Egyptian gold mine, Sukari

Sukari gold mine, operated by Egypt's Centamin

IMPROVED flexibility at Sukari gold mine in Egypt would “restore value” at UK-listed gold mining firm, Centamin, during 2021, analysts said.

The company today announced fourth quarter gold production of 67,996 ounces, a 54% year-on-year decrease, but in line with guidance of 60,000 to 70,000 oz. That takes full year production to 452,320 oz which was within 445,000 to 455,000 oz guidance.

The company kept to previously announced 2021 production guidance of between 400,000 to 430,000 oz mined at an all-in sustaining cost of $1,150 to $1,250/oz. Capital expenditure was put at $225m for the year.

Analysts pointed to efforts by management to open up new areas of Sukari and to get an improved understanding of the orebody which is accessed through open pit and underground means. The results of a life of asset mine review of Sukari is imminent whilst analysts are also waiting on a review of the firm’s West African exploration potential.

“The next major catalysts will be the West African portfolio review expected before the close of the first half of the current financial year,” said BMO Capital Markets in a report. The development of the Cleopatra open pit – with first ore expected in 2022 – “should introduce even greater flexibility in the open pit,” the bank said.

“The production should progressively improve in coming quarters as the long march towards restoring Sukari, and the 2.5 years of contracted open-pit stripping run their course,” said RBC Capital Markets. “We think management’s plans are the right ones and value should start to be liberated as the open pit flexibility returns and as the underground moves to reach its potential.”

Centamin appointed Martin Horgan, the former CEO of West African mining firm, Toro Gold, in April with a review to returning the company to operational stability. During the latter years of former CEO, Andrew Pardey, Centamin had lost its way. It failed to meet its production promises after an extended period of stellar returns.

In December, Centamin unveiled a mining and dividend return plan for the next four years of no less than $100m payout for each of the first two years, and ensure gold production of 450,000 to 500,000 ounces up to 2024.

For the 2020 financial year, Centamin is to pay a three cents per share final dividend, equal to $35m. This would take the total dividend payout for 2020 to $104m. The minimum total dividend for 2021 would be $105m, it said.

For the fourth quarter, Centamin reported group free cash flow of only $3m – sharply down on $36m in cash flow achieved in the previous quarter – owing to $48m in capital expenditure and a $21m profit share payment to the Egyptian government. Full-year cash flow was $142m, enough to cover its payout commitments.

In the meantime, RBC Capital Markets said it would take a wait-and-see stance on Centamin. “We continue to see gold stocks as favourably priced in this current environment but continue to see better value elsewhere, especially as Centamin works through its challenges,” it said.