Investor appetite for gold digger Centamin (LSE: CEY) picked up remarkably in the wake of first-quarter results unpackaged in late April. Its share price rose by rare double-digit percentages on the day, movement which also carried it away from three-year lows.
Strangely though, demand for the FTSE 250 stock has petered out since then and so its share price remains at a significant 43% discount to levels seen a year ago.
Look, I understand share pickers may remain cautious following production problems at its bellwether Sukari mine over the past year. But I believe there’s plenty of fuel that could see Centamin’s share price blast higher in the months ahead.
Production surges in Q1
So those output issues at its mega complex in Egypt may be stemming buyer appetite, but April’s trading update could prove the first step on the road to long-term recovery.
In it, Centamin declared production in the three months to March charged past forecasts, the 116,183 ounces of gold pulled from the ground blasting past expectations which ranged between 105,000 and 115,000 ounces. The show-stopping result reflected “ongoing operational improvements delivered in the open pit and underground,” the mining giant said, and included record processing plant throughput of 3.25m tonnes of ore.
The African digger also affirmed expectations that production will pick up during the second half of the year, thanks to “increasing quarter on quarter open pit ounce contribution, as the grade profile improves with depth, and further optimisation of our underground operations.”
Now Centamin elected to keep its full-year guidance locked at between 490,000 and 520,000 ounces of the yellow metal following that blistering first-quarter performance, and it may be a bit early to break out the bunting just yet and proclaim that it’s plain sailing from here. That said, the size at which output beat expectations provides plenty of reasons to be positive for the coming quarter and beyond.
One last cause for celebration in quarter one: unit cash costs of $631 per ounce in quarter one also beat guidance, while all in sustaining costs came in at the lower end of guidance at $898.
Another share price catalyst?
Production improvements are not the only reason to be positive for the remainder of 2019, though. Because of the range of geopolitical and macroeconomic headaches that continue to swirl, precious metal demand keeps on rising from the investment community. This was laid bare by latest World Gold Council data which showed quarterly inflows into gold-backed exchange traded funds rose 49% in the first quarter to 40.3 tonnes.
However, City analysts are forecasting that Centamin’s earnings will topple 7% in 2019. But given the robustness of gold demand and that aforementioned operational improvement at the mining play, I can easily see this prediction being upgraded as the year progresses. And so I’d be tempted to buy in despite the company’s elevated forward P/E ratio of 19 times.
What’s more, at current prices, Centamin boasts monster dividend yields of 4% for this year and 5.7% for 2020. I think there’s plenty for share pickers to get their teeth into right now and reckon this FTSE 250 firm could prove to be a great success story for 2019 and probably beyond.
