Shares in FTSE 250 gold miner Centamin (CEY) have taken another tumble after it reduced free cash flow expectations as it admitted production will undershoot and costs exceed expectations this year and next.
Centamin was forced to close off an area of its Sukari mine last month after detecting ground movement, with open-pit mining operations in the zone halted as a preventative safety measure. The firm conceded this would dent its production output.
Now the scale of the problem has become clearer, the miner has wiped out the vast majority of its share price gains this year, with the latest profit warning sending its shares down 20% to around 130p, showing the problems miners with only a single producing asset can encounter.
PRODUCTION GUIDANCE LOWERED
In its quarterly report for the three months to 30 September, Centamin has lowered its production guidance to range of 445,000 to 455,000 ounces of gold produced for 2020, compared to the 516,000 ounces analysts had predicted previously, while 2021 production is forecast at 400,000-to-430,000 ounces.
Fourth-quarter production guidance was estimated in a range of 60,000-to-70,000 ounces at an all-in sustaining cost (AISC) of $1,450-to-1,650 per ounce of gold sold, which included capital spend of $30-to-40 million. For reference, an AISC under $1,000 is considered good.
Consequently free cash flow expectations for the fourth quarter are expected to be largely neutral, bringing 2020 full year free cash expectations to $135-145 million.
The company said remediation work at the Sukari open pit would be completed in the first half of 2021.
‘COULD’VE BEEN SO MUCH BETTER’ FOR CENTAMIN
AJ Bell investment director Russ Mould said that with gold above $1,900 an ounce, Centamin still has ‘every chance to make healthy profit margins’, especially as its balance sheet is net cash so there are no net interest bills to pay, but added that the outcome ‘could have been so much better’.
Mould said, ‘Difficulties at an open pit mine at the Sukari site are a reminder that mining for gold (or any commodity) is not as easy as it looks and investors could be forgiven for thinking that gold miners are almost more trouble than they are worth.
‘Over the past year, gold is up 29% in sterling terms and Centamin is up by 25%, but the point behind owning miners is the operational leverage they bring to the metal’s price: if all goes well, their profits should rise so much more quickly than the price of the commodity, as the bulk of their costs are relatively fixed - unless something goes wrong.’
