August 12, 2014    3 minute read

Centamin: A Golden Fairy Tale

   August 12, 2014    3 minute read

Centamin: A Golden Fairy Tale

Centamin plc is a gold mining company consisting of global projects with the largest located in the Eastern desert of Egypt, their Sukari Gold mine. The business is listed on the LSE from 2009 under the epic CEY and on the TSX under CEE since 2007.

Egyptian businesses were always looked upon with suspicion, and with controversial political events unfolding in the past year, it is even more so; but Centamin is not a business to ignore. In 2012, it had many problems doing business. Many institutions and organisations were corrupt, the scent of havoc lingered, and political tensions were present. Centamin got caught up in all these events and were barred from transporting 400kg of gold out of the country in mid-2012. And to make things worse, December of the same year, the gold miner was ordered by the courts to halt production entirely. It sounded like a horror story just began and Centamin‘s fate was sealed. The events shredded 75% off the share price in a mere 2 months. Then the company reached the end of the tunnel.

As with most fairy tales, there’s a twist. Centamin rebounded positively with over 100% upside in a matter of weeks, reaching 61p in early February 2013 from an all-time low of 27p mid-December 2012.

 Since then, the gold miner has enjoyed masses of growth. In 2013, it produced 356,943oz of gold, a whopping 36% increase on 2012 and well above the guidance of 320,000. Despite only producing 155,552oz in the first half of this year, Centamin claim to be still on track to achieve the guidance of 420,000oz given to us investors. This goal may be a little too optimistic, but well within Centamin’s reach to do so. Their highly regarded expansion plan stage 4 phase, the phase that estimates the mine to harvest a consistent 450,000-500,000oz each year for the next 20 years, is estimated to already be full force.

Although all these figures are pleasant to read, it doesn’t show the whole story. The business’s EPS fell 8% in 2013 year-on-year with the reason coming from the shock in gold price in the first half of 2013. As prices fell through to unexpected levels, what comes next is a thought to ponder. However, throughout the world we are seeing less gold mining start-ups because of the low gold price, gold being in continual demand from the Asian giants China and India and political tensions in the Middle East as well as with Ukraine and Russia. From this one can strongly form the argument that this safe haven against equities has potential to hit new highs in the next five years.

Gold miners are in their own right a hedge against themselves, though being equities they also benefit if the price of gold rises. And even though the share price has recently broke the short-term 70p upside barrier, trading at only 9x earnings with the sector average at much higher, one can only see the Egyptian Gold miner as still undervalued.

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