3rd May 2016 10:57
LONDON (Alliance News) - Egypt-focused gold miner Centamin PLC Tuesday said its profit soared in the first quarter of 2016 as production continued to increase whilst cash costs declined substantially, leading to a rise in revenue and a considerably better margin in the period.
Centamin had already published production figures totalling 125,268 ounces for the first three months of the year, showing a 6.0% lift from the final quarter of 2015 and a 16% rise from a year earlier, leaving Centamin's guidance unchanged at 470,000 ounces for the whole of 2016.
Notably, the production rate in the first quarter implies production over the course of the year would exceed 500,000 ounces, supporting claims by some analysts that production could even beat Centamin's guidance in 2016.
On Tuesday, Centamin revealed that production generated a USD40.9 million pretax profit in the first quarter, soaring from the USD4.7 million profit booked in the fourth quarter of 2016 and rising substantially from the USD25.6 million booked a year earlier.
Gold prices have rallied since the start of the year, averaging USD1,196 per ounce for Centamin in the first quarter compared to USD1,103 per ounce in the previous quarter. However, that gold price was still slightly lower than the USD1,216 per ounce average that Centamin received in the first quarter of 2015.
All-in sustaining cash costs were lower in the period, averaging USD758 per ounce compared to USD851 per ounce in the previous quarter and lower than the USD858 per ounce in the first three months of 2015 - improving Centamin's margin.
However, Centamin is expecting its all-in cash cost to rise over the course of the year, reiterating its full-year guidance of USD900 per ounce, despite Chief Executive Andrew Pardy stating the "key focus" for the company's operations during the coming quarters is on "realising the potential for sustained productivity and cost improvements".
The CEO said costs were below full-year guidance in the quarter partly because the amount of sustaining capital expenditure the company will incur is expected to be higher throughout the remainder of 2016 than it was in the first quarter.
First quarter revenue amounted to USD148.1 million, rising 14% from USD130.2 million in the fourth quarter of 2015 and increasing by 9.3% from the USD135.5 million generated a year earlier.
The amount of cash generated from Centamin's operations followed suit, coming at USD60.5 million in the first quarter, a 13% rise from the previous quarter and 6.9% higher than what was reported a year earlier.
The rise in revenue and improved gross margin helped push earnings before interest, tax, depreciation and amortisation to USD67.5 million in the first quarter, up 41% quarter-on-quarter and 28% higher than what was made a year earlier.
All of Centamin's production comes from the Sukari mine in Egypt, and the mine has continued to generate strong free cashflow and returns. Centamin said one of the reasons production is currently running ahead of its full-year guidance range is because underground mining rates and the average grade were both higher than what it expects over the whole of 2016.
In addition, the underground exploration at Sukari is suggesting there is further potential to expand and upgrade the resources and reserves at the company's flagship operation.
The Sukari mine is in the south-east region of the Eastern Desert of Egypt, around 700 kilometres from Cairo and 25 kilometres from the Red Sea.
Away from the producing mine in Egypt, Centamin said exploration in Burkina Faso in West Africa has continued to support the potential for a near-surface and high-grade mineralisation project, adding it is also delivering "encouraging results" from its exploration activities in neighbouring Ivory Coast.
"We continue to test the potential for lateral and depth extensions at these more advanced targets [in Burkina Faso], with priority on the Wadaradoo and Napalapera prospect areas. In Cote d'Ivoire, first-pass drilling over targets defined by geochemical and geophysical surveys has indicated the potential over a number of prospects for laterally significant mineralisation," said Centamin.
The miner's debt-free balance sheet continued to build strength in the first quarter, as the company ended March with USD275.7 million of cash and cash equivalents, rising from USD230.1 million at the end of 2015 despite Centamin spending USD12.0 million on exploration work in the period.
With cash building, shareholders will keep an eye on Centamin's exploration success after the miner said it will consider dishing out additional returns to investors on top of its normal dividend if its exploration efforts fail to lead to a substantial discovery.
With Centamin reliant on Sukari for all of its production, the miner is keen to find a new discovery or to find a project it could potentially acquire in Africa that could assist in diversifying its portfolio.
The potential for additional returns comes after Centamin increased its dividend in 2015 by 2.8% from the maiden dividend paid in 2014, in line with its policy to pay out between 15% to 30% of its net free cashflow each year.
Centamin shares were trading up 0.9% to 122.0 pence per share on Tuesday. The stocf is up by more than 89% since the start of the year.
By Joshua Warner; [email protected]; @JoshAlliance
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