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Centamin output guidance published - sell

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Egypt based FTSE 250 listed gold miner Centamin (LSE:CEY) yesterday gave guidance for 2013 output – that it does so 2 weeks ahead of the publication of 2012 results is a bit odd. Is it a case of getting the bad news out ahead of the next bad news…the results.

© Mike Hodges

The company states that it expects to produce 320,000 ounces of gold this calendar year at a cash cost ( assuming no fuel subsidies) of $700. That would be a 22% increase on 2012 output which is not surprising given that a range of political difficulties scarred 2012 numbers. Of course Centamin assumes that these difficulties (or new ones) will not reoccur. Given the newsflow from the increasingly Islamofascist republic of Egypt, I am not so sure of that. The company reaffirms that it expects output to increase to 450,000-500,000 oz from 2015 onwards. Inshallah.

The company also warns that stage 4 expansion at its Sukari mine has suffered some delays due to problems getting key materials and services. The bulk of commissioning will now take place in the second half of this calendar year and it should be fully operational by Christmas. Once again. Inshallah. Partly as a result of these delays stage 4 is now expected to cost $325 million including contingency – we had been told that it would be $287.6 million excluding contingency. The inability to compare apples with apples as opposed to pears makes me wonder if Centamin really knows what the final cost will be.

Some brokers, notably Fox Davies, have expressed a degree of scepticism as to whether output numbers and projected cost targets can be achieved. There are still issues in Egypt regarding export permits, and indeed claims on title as well as problems inherent in running an operation in a Country which is clearly heading downhill fast. There thus has to be very real issues concerning earnings visibility. And that is the crux of the bear case which I explained repeatedly since last August but most notably HERE

It is still possible in such an unstable environment that Centamin will lose all. I think that is unlikely but one needs to risk weight any valuation accordingly. As such I would regard the unrisked 44p per share NPV calculation made by Fox Davies – which tallies with my numbers based on the absence of any fuel subsidy – as being – if anything – generous. My stance remains sell.

If you are looking for mining stocks that offer real value and span a basket of commodities I suggest that you look




And perhaps my favourite gold stock, HERE

Tom Winnifrith writes for 10 US and UK websites – you can get links to all of his free to access content at and follow him on twitter @tomwinnifrith

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