Berenberg retains hold on Centamin, long-term guidance for Sukari imminent
Berenberg has reiterated its ‘hold’ recommendation on Centamin, but said there remained potential for the gold producer to beat forecasts, highlighting the importance for the company's outlook of what it expected to be the imminent release of longer-term guidance for its flagshio Sukari mine.
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Shares in Centamin, which operates the Sukari mine in Egypt, have underperformed the London precious metal peer group this year, with the stock up only 3% despite rising gold prices.
Berenberg said that Sukari was a “large-scale, high-margin gold mine” but that “the shine has come off this reputation given its recent performance.”
The bank continued: “There has been extraordinary grade volatility at both the open pit and underground operations through the last 12-to-18 months. The first quarter update, however, showed that the company is starting to get on top of these issues and it delivered a better-than-expected first-quarter performance.
“A major marker will be the imminent release of longer-term guidance for the Sukari deposit, which will give investors greater certainty on the future mine plan. Delivery on this plan in the second-half should start to rebuild investor confidence in the outlook for underground grades and management’s ability to optimise performance at Sukari.”
Berenberg has an 110p price target on Centamin, up marginally from 106p after it increased its gold price forecast. But its analysts conceded there was "potential for more positive outlook” if the company delivers stronger guidance.
“In the short term, the greatest potential [to beat our forecasts] is if the company announces better-than-expected mid-term operating guidance expected with the interim results. Longer-term potential comes from the emergence of a mine development project from the West African exploration.”
Gold prices have surged recently, as global political and economic concerns, including heightened tensions between the US and Iran, deepened, causing investors to switch into perceived safe havens. A weaker US dollar has also played a role, as all commodities are priced in dollars.
On Monday, prices had eased off their highs, however, after the US and China agreed to resume talks aimed at ending the trade war between the two countries.