Centamin’s Doropo project could be game changer for firm’s under pressure share

Sukari gold mine, operated by Egypt's Centamin

CENTAMIN is to pay a minimum 5 US cents per share dividend in the current financial year after reporting a decline in profits for 2021 – a year described by management as a “baseline” as it sets about improving production and costs at its Sukari mine.

Despite this shares in the company were under pressure on the London Stock Exchange today easing 5% and taking losses in the last five days to 6%.

Taxed attributable profit sank 35% year-on-year to $101.5m for the 12 months ended December 31 owing to an 8% decline in production to 415,370 ounces, as flagged by the company in a January update. The company also took a write-down on its Batie West project in Burkina Faso.

The outcome was a reduction in sales – down 13% to 407,252 oz – which had the effect of increasing all in sustaining costs (AISC), up 19% to $1,234/oz.

Had the company not taken out $27m in costs they would have been “in a much different situation”, said Ross Jerrard, CFO of Centamin in a call to analysts.

The company reported negative cash flow of $6m after paying out a 45% royalty to the Egyptian government. Jerrard acknowledged that “cash flow is the metric that counts”.

Centamin announced a 5c/share dividend for 2021 which is line with earlier commitment in December 2020 to pay out at least $100m over the next two years.

CEO Martin Horgan said however that 2021 was “a good year” as the company had established a foundation for improved production.

Sukari was on track to increase production to 430,000 to 460,000 oz this year – as set out in guidance – and there were plans for getting the mine to 500,000 oz/year once a plan had been approved for expanding the mine’s existing underground operations.

Horgan also said Centamin hoped to have the results this year of a feasibility study of Doropo, a greenfields prospect in Côte d’Ivoire. If developed, the mine would be represent  diversification in geology and geography for Centamin.

“The market is not factoring in Doropo. There is real potential for the mine to add to the company’s net asset value,” said Horgan.

A preliminary economic assessment (PEA) of Doropo last year implied a 13-year life of mine producing average annual gold of 207,800 oz for the first five years, and 150,959 oz over the life of mine. The prospect contains a total of two million ounces at an average all-in sustaining cost of $904/oz. Building the mine would cost $275m.

“We gave it a good shake,” said Horgan of the PEA conducted on Doropo. “Inflation will be a factor but we have built in enough fat in the PEA that it will be a real project.

The company would also press ahead with early studies on Eastern Desert prospects in Egypt granted last year by the government as part of its strategy to attract foreign investment. Sukari is the only major gold mine operating in the north African country.

Horgan said Centamin also planned more exploratory work on ABC, another new prospect in Cote d’Ivoire. However, it had decided to divest from Batie West as it did not meet investment criteria.

Share buy-backs

Should shares in the company not re-rate on the back of Doporo’s feasibility study later in the year, the company could use that as a basis for a share buy-back programme as part of its capital review programme.

“If we are not getting value for Doropo then that might inform the decision at that point,” said Jerrard in response to a question about increased dividends.

Centamin’s 5c/share dividend for this year is “a minimum”. Any increase on that would most likely be paid out as a dividend whilst a share buy-back, previously suggested by the company, was a second option.

Inflation could hinder Centamin’s progress this year, however. While the Egyptian government sets the price of diesel for Centamin – currently 64 US cents per litre – it is nonetheless linked to world oil prices currently hovering around $100 per barrel.

Jerrard said Centamin had budgeted 200 million litres in diesel usage this year at 60c/l, therefore the current price implied an increase over budget of about $10m. This would not unseat the firm’s budgeting plans, said Jerrard who added that Centamin was nonetheless concerned about the effects of pricing on reagents and other consumables this year.