Centamin (Price: 45.0p | Target: 50.0p | Rec: Buy) Centamin (CEY.L) delivered another solid production quarterly, producing 84,757oz of gold in the 3Q, in line with our estimate of 85koz.

It is now well placed to exceed its FY13 guidance of 320koz (at cash costs of under US$700/oz).

We had already been expecting 329koz and have not altered our estimates.

While CEY still has to complete the integration and commissioning of the Stage 4 plant expansion to 10mtpa, continued outperformance by the plant crew suggests that this is well under control. * CEY is clearly doing a good job of under-promising and over-delivering.

Ore production (from both the open pit and underground) and plant throughput were all up on the 2Q13A.

Grade declined in line with expectations, such that gold production of 84,757oz was below the 2Q13A of 93,624oz.

The 4Q13E should reflect a further drop in production, as the Stage 4 commissioning gets underway.

However, the company has suggested that FY13 guidance is still likely to be exceeded. * The underground operations are also progressing well, delivering ore in the 3Q at a run-rate of over 600ktpa.

Given the higher underground grades (c.10g/t), this is encouraging for future total production rates for the company, with the underground expected to contribute approximately one third of overall ounces.

We only ever assume a maximum total production rate for Centamin of 437koz/pa, while the company is targeting 450-500koz/pa longer term. * Our target price of 50p is based on an equal blend of NPV and three-year forward earnings multiples (5x PER, 3x EV/EBITDA, 3x FCFPS), applying a flat $1,400/oz gold price.

We maintain a Buy recommendation.

Clearly this upside has to be tempered against the on-going, well-documented legal actions, together with the sovereign risk that Egypt presents generally.

We note that CEY still remains largely unaffected by the political events.
To access the full note please click here Analyst: Hunter Hillcoat
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