Centamin [LON:CEY], a UK-based gold mining company with operations in Egypt and Burkina Faso’s, share price is sitting at a six-year low, despite its mining sector peers far outperforming many investors’ expectations this year.
However, this may speak volumes about the company’s recent operational achievements, but it could also represent an extremely profitable investment opportunity for both retail and institutional investors active within the mining space.
Centamin is operating a significant project on the Arabian-Nubian Shield, a mineral rich geological formation on the flanks of the Red Sea. Founded in 1970, the Jersey-headquartered company has grown to become part of the FTSE250 with an array of promising investment projects scattered around Africa.
Centamin’s Current Projects
Centamin’s principal asset, the Sukari Gold Mine, is a long-life, bulk tonnage open pit and underground operation located approximately 700km from Cairo and 25km from the Red Sea. It began production in 2009 and is the first large scale modern gold mine in Egypt, forecast to produce more than 400,000oz per annum. Earlier this year Sukari produced its five millionth ounce, according to Centamin. The Sukari Gold Mine has a life-of-mine of at least 12 years, with eight years of underground mining and 5.8moz in proved gold reserves. Additionally, Centamin holds 3,000km2 of new exploration licenses across Egypt.
Centamin is also developing the Batie West Project in Burkina Faso (2.1moz inferred reserve), as well as the Doropo (5.3moz estimated reserve) and ABC (2.16moz inferred reserve) projects located in Côte d’Ivoire. Undoubtedly, Doropo is the largest of these projects, consisting of seven exploration permits, covering an area of approximately 1,850km2 in the north-eastern part of Côte d’Ivoire. A PEA (Preliminary Economic Assessment) completed in 2021 has suggested that the project has potential to average annual gold production of 207,800oz for the first five years, with a total life-of-mine of 13 years.
Why have Centamin Shares Fallen in Value?
Centamin’s share price has fallen drastically since it reached a record-high peak in August 2020, when the company’s stock was valued at 220p. Today, it is struggling at just under 80p a share, falling almost 25% in the past year. Although the macroeconomic headwinds witnessed throughout 2022 have played a part in Centamin’s stock price decline, some of the company’s operational failings have also been a significant factor.
In April, the Jersey-registered miner said that full-year profits had halved on the back of forecast lower revenue and an impairment on assets in Burkina Faso. This has resulted in return on capital invested falling from 19% five years ago to 11% today, well below the industry average of 15%. It is likely that this has put quite a few investors off the company.
What do Centamin’s Investment Prospects Look Like?
Centamin has a consistent record of financial performance with revenue and profit growth achieved consistently over the past half-decade. Since 2017, the company has always earned over $600m in annual revenue, together with a positive net income at least exceeding $50m. It is difficult to see this changing in the upcoming years.
Centamin also has no existing debt on its balance sheet currently, which gives the company a great deal of financial flexibility with regards to investments into future mining projects. Its dividend yield stands at 9.05%, further incentivising investors to purchase the stock.
With such high levels of inflation being seen in today’s economy, it is well worth considering investing in a gold mining company such as Centamin.