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9 May 2012
Centamin (CEY.L)
Closing Price: 61p
Rating: Buy
Centamins 1Q12A gold production of 49koz had already been announced.
Reported cash costs were better than our estimate, but could be higher
if CEY has to pay full international fuel prices.
CEY has confirmed its
250koz target for 2012 at cash costs of US$550/oz (with subsidised
fuel).
We assume 254koz at US$678/oz (unsubsidised).
1Q12A EBITDA of
US$60.5m is a good start towards our FY12E of US$237m.
CEY ended the
quarter with cash of US$175m and no debt.
Maintain Buy.
* Centamins 1Q12A gold production of 49koz had already been
announced.
* Reported cash costs of US$637/oz were better than our
expectation of US$701/oz.
However, should CEY have to pay full
international fuel prices, the 1Q12A cash cost would be US$730/oz.
CEY
has had to advance funds to its fuel supplier, Chevron, at the
international fuel price, but is currently treating these as prepayments
and is not expensing them.
Should they be expensed, they would add
US$93/oz to the 1Q12A cash costs.
CEY is still negotiating with the
government the level of fuel subsidy that it should receive, arguing
(with the support of the national mines authority) that an immediate
removal of the subsidy is not reasonable.
* 1Q12A EBITDA of US$60.5m is good start towards our FY12E of
US$237m.
We will not adjust our earnings expectations to reflect 1Q12A
cash costs until we have further clarification on the fuel subsidy.
CEY
ended the quarter with cash and liquid assets of US$175m and no debt.
* The Stage 4 expansion, taking Sukari capacity from 5mtpa to
10mtpa, is progressing well, with expenditure of US$99m so far, versus
the budget of US$287m (excluding contingency).
We assume a total of
US$340m.
* CEY has confirmed its 250koz target for 2012 (the 2H was
always expected to be stronger than the 1H) at cash costs of US$550/oz
(with subsidised fuel).
We assume 254koz at US$678/oz (unsubsidised).
* CEY continues to offer good value, but needs to deliver
operating consistency to demonstrate that the value is real.
We value
CEY at 82p per share (NPV, 8% discount rate, US$1200/oz long-term gold
price) and have a target price of 95p, based on a blend of NPV and
forward earnings multiples.
We maintain a Buy recommendation, while
highlighting that CEY is a high-risk stock.
Hunter Hillcoat
+44 (0) 20 7597 5182
Louise Collinge
+44 (0) 20 7597 5779
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