23rd Mar 2015 11:47
LONDON (Alliance News) - Shares in Egypt-focused gold miner Centamin PLC surged on Monday as it maintained its newly-instituted dividend payouts and forecast more production in 2015 on the back of an improved fourth quarter, even as it reported a sharp drop in pretax profit for 2014 as the falling gold price offset a rise in production.
Centamin shares were up 15% to 61.65 pence in early trade, comfortably the best performer in the FTSE 250.
Centamin said its pretax profit for the year was USD81.6 million, less than half the USD184 million it posted a year earlier. In the fourth quarter, pretax profit increased, however, up to USD33.8 million from USD30.6 million a year earlier. Revenue dropped to USD472.6 million from USD503.8 million for the year, but the company saw a big improvement year-on-year in the fourth quarter, when revenue rose to USD151.1 million from USD111.2 million.
Despite the weaker profit and revenue, Centamin proposed a final dividend of 1.99 US cents per share, giving it a total payout of 2.86 cents per share for the year. Centamin paid no dividend in 2013, having only instituted a dividend policy at the beginning of 2014.
The company said its gold production increased in the year to 377,261 ounces, up from 356,943 ounces a year earlier, while gold sold in the year increased to 375,300 ounces from 363,576 ounces. But the average realised gold price for Centamin fell to USD1,257 per ounce from USD1,384 per ounce in 2013.
Production volumes followed the trend of its rising profit and revenue in the fourth quarter, with production increasing to 128,115 ounces from 91,546 ounces a year earlier and gold sales increasing to 125,416 ounces from 88,856 ounces. The average gold price realised in the fourth quarter was still weaker year-on-year, down to USD1,203 from USD1,249, but the fall was less pronounced than the drop seen for the full year, though the average price in the fourth quarter is below that of the full year.
Centamin said its average cost of production was USD729 per gold ounce in the year, significantly ahead of the USD663 per ounce for 2013. In the fourth quarter, however, the cost fell to USD655 per ounce from USD711 a year earlier. It maintained its guidance of a cost of USD700 per ounce for 2015.
The production volume for the year, despite the improvement in the fourth quarter, was in line with the revised guidance set out in its third quarter results of 370,000 to 380,000 ounces but was below its original guidance issued at the start of the year of 420,000 tonnes. Centamin also missed its cost guidance for the year, which had been maintained at USD700 per ounce in the third quarter despite the downgrade to its production forecast.
Centamin said its production in 2014 was hit by lower-than-expected processing rates and underground grades, which drove its decision to revise its production guidance in November. But it said its production rate in the fourth quarter was in excess of its long-term guidance of 450,000-500,000 ounces.
Its gold production guidance for 2015 is 420,000 ounces at a cash operating cost of USD700, the same as the original target set for 2014. Centamin said the northern and eastern walls of the open pit mine at Sukari will be the focus for 2015 and, as mining ramps up at the site, grades are set to progressively increase to the reserve average in the second half, when it expects group production to increase to 450,000-500,000 ounces.
The company said it is continuing to evaluate potential project acquisitions for 2015, following on from the acquisition of Australia-listed Ampella Mining Ltd for AUD40.9 million, which it agreed in December 2013 and completed last year. That deal expanded Centamin's country exposure, giving it a presence in the Burkina Faso and Ivory Coast markets.
Centamin added that its litigation action in Egypt progressed in line with its expectations over the year. The company is involved in two cases, one involving the loss of a local fuel subsidy amid a dispute with a local oil company and one concerning the agreement governing the concession for the Sukari mine. Centamin said it remains confident in the merits of both cases.
Shore Capital and Investec both said they were impressed by the dividend payout from Centamin.
"This was a pay-out of 30% of free cashflow, in-line with Centamin's stated intention of paying an annual dividend of around 15-30% of net cash flow after sustaining capex and the profit share payment to the Egyptian government," says Shore analyst Yuen Low, who adds that the dividend offers an attractive yield. Shore does not have a recommendation on Centamin.
Investec analyst Hunter Hillcoat also said the dividend was a "significant positive" and added the company is now in a position to harvest the Sukari mine following years of investment and should be able to generate significant free cash flows, allowing to pay substantial dividends while still continuing to build up a cash position which could be applied against its other projects.
Investec upgraded the company to Buy from Hold on the results, based on recent share price weakness, though it lowered its price target to 64 pence from 68 pence.
But Panmure Gordon, which has a Buy rating and 82 pence price target on the stock, said it is concerned about the company's costs against its guidance.
Panmure analyst Alison Turner said Centamin's guidance of USD700 cash costs per gold ounce looks optimistic and the broker is forecasting costs of around USD711 per ounce instead.
By Sam Unsted; [email protected]; @SamUAtAlliance
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