I’m sorry for not having posted lately but I’ve been exceptionally busy even though I’ve continued to trade. To summarise I’ve lost a lot of money on my Avocet holdings, made money on Amara, lost a lot on Gulfsands (which luckily I’ve managed to offload on its recent tick-up to 68p) and made a lot on long trades on both Xcite Energy and Quindell which I’ve timed out very well. I’m thinking of posting a statement of my account here if I figure out how to upload the data efficiently.
I still believe in Centamin as a long term play. In my view they are relatively immune to gold price perturbations compared to the vast majority of producers that I monitor – thanks to their low all-in costs.
At current price of gold and extrapolating forward to their full 50:50 split with the state by c. 2019, I still estimate their earnings per share at 12p+ (ie making their forward P/E c.5x!), so on a fundamental basis they remain considerably undervalued.
Dividend payments are due to be paid from this financial year onwards.
Their large capital expenditures on the 10mtpa expansion are complete – so free cash flow will rise and remain positive going forward.
They have considerable resources and reserves – so life of mine for Sukari is considerable – even at c.600kozpa.
Ev/OPCF for 2013 was just 4.3x – indicating both the low valuation and extremely poor sentiment across the sector at large.
2013 operating profit margin was 49%, whilst most of the global large producers were struggling around the marginal cost of production.
Costs/tonne milled at $46/t have stayed remarkably constant over the last 4 years with their overall average costs/t being $48/t (including UG operations!).
Unlike most of their peers they have a positive Cash/equity of +9% compared to high levels of net debt amongst most of the big producers.
I calculate all-in costs for 2013 were $710/oz (based on their cash flow statement) and $721/oz (based on their P&L figures) – so a pretty good correlation between the two methods.
So, on a personal level, I am pretty confident to both hold and add shares of CEY.
So the Fed will continue pumping liquidity
Is this good news? Will it end pretty? The Federal Reserve has lost its nerve and will continue with quantitative easing i.e. printing money out of thin air. What a craven lot they are, and it looks like Bernanke will duck the tapering decision to leave it all for his successor to worry over.
Here’s how I performed on my last trades; have to admit they went pretty good but I did well to cut my positions when I saw that the USA were shying away from attacking Syria.
Bought 100,000 Amara at 17p on the 19th August and sold them at 19.8p on the 30th August
Bought 100,000 Avocet at 21p on the 28th February and sold them at 20.1p on the 30th August
Bought 100,000 Avocet at 11.3p on the 08th August and sold them at 20p on the 05th September
Bought 50,000 Avocet at 12.8p on the 19th August and sold them at 20p on the 05th September
Net Gain: GBP11,400
I’m also very heavy at the moment in Centamin shares having bought over 100,000 at an average of 42.397p
Over the last month I’ve booked profits in both Amara and Avocet shares and have a sizable running position in Centamin. It is interesting to note that the NYSE has removed a rule that excluded shares which aren’t USA listed to be included NYSE Arca Gold Miners Index which happens to be the most popular sector basket for exchange traded funds in the United States. And guess what? Only Centamin qualified! The biggies like African Barrick Gold, Hochschild, Polymetal International and Fresnillo were excluded because they were judged to have controlling stakeholders! The inclusion is likely to generate substantial buying for Centamin due to the shares from GFX when the ETF begins to buy.
This morning after the Federal Reserve announcement I went ahead and bought some Amara shares at 19.156p; I’m only looking to hold them short-term though. Unfortunately, although Centamin is a gold mining share it isn’t at all sensitive to gold price fluctuations at the moment given that it has a pending law case hanging on its head – which I believe will be heard on the 24th Sept. I’m not expecting much for the court hearing – perhaps another adjournment which would give more time for a new renegotiated agreement between the authorities (whoever they might be in this case) and CEY. Meantime, the company will continue to dig the gold ore out of the ground most profitably as one of the lowest, if not the lowest, operating cost gold miners there is. Of course the SP will soar if the case closes favourably on the 24th but that’s real speculation!
Many reasons for the move up and potentially a lot more to come:
- Price of Gold has been recovering of late and will hopefully be in line for a decent spike up when the first US / French cruise missile hits Syria. All the political lobbying seems to be indicating a yes vote in America on Monday and the Obama regime seem mind set on action.
- Chinese economy is on the mend as is UK and US – and this has led to a recovery in mining stock shareprices.
Avocet and Amara Mining seem highly correlated with each other and with the price of gold; a 1% move in the price of gold translates to over a 5% moving in the underlying company share prices.
On the other hand, Centamin’s price movements have littl to do with the price of gold, nothing to do with the world situation outside of Egypt.
CEY share price was heading towards 200p when the Egyptian revolution kicked in. It should really be at least 200p by now. Any move towards Egyptian stability, even if that may be control by the army releases enough of that downward pressure to allow the price to rise to closer to its political environmental friendly level.
- Sinopec (despite the geopolitical uncertainties) has just taken a 33% stake in an Egyptian Oil and Gas company (Apache Oil).
- Realisation that CEY is one of the lowest cost gold producers worldwide and is expanding production and on target to meet FY targets. Additionally lots of cash on the balance sheet.
- Back in Court circa the 29th Sept when there should be a realistic chance of an outcome. More realistic chance than any of the other dates.
- Was way oversold. (and still is). I feel that the share price has been so strongly suppressed that the overall controlling factor is confidence that the company is secure and able to do business in an improving environment. Centamin in itself is an exceptional company, well run with excellent growth and great results.
Nice to see the recovery in share price playing out and I expect more to come.
Gold has been in rallying mode lately and is now around the 1365.10′s levels. This seems to have helped push up Avocet stock strongly and its been trending for a number of days now. As the time of writing Avocet is trading up 36.95% on the day trading at 20.20p – that’s one hell of a rally and my 16p average position is in profit. I’m determined to continue holding the position for the near-term but won’t let a profit turn into a loss.
Meanwhile am very excited. Have been sent email by FBI saying they are holding $10.5m with my name on it and they just need my bank details and a written letter saying it’s not drug money to release the funds. I don’t know any drug barons, and am not sure why they’d be sending me $10.5m, but hey-ho.. not to look a gift horse in the mouth. I won’t be putting my windfall millions into Avocet just now, I hate to tell you.
Risk Warning: This is a high risk stock and trading it is high risk; just consider that it was trading over 200p in 2011!
Centamin reported second quarter and half year numbers to June 30 this year with pre-tax profits amounting $123.6m for the six months to the end of June – up from $92.9m a year ago.
Revenues rose to $272.5m – up from $87.9m – and gross profits increased to $140.8m from $102.1m. The company has $168m (£107.5m) in free cash
Company says relations with Egypt ministry “positive” although the company still faces a legal challenge over its operating license to operate the Sukari mine in Egypt.
M/C 410M PROFIT FOR 6 MONTHS 123M these are cheap down to the riots. The army and the people of Egypt want to get back to work – of course the Muslim Brotherhood remains a problem and there is a risk that the situation will worsen before it gets better (and even then there are no guarantees!). The share price going up when the army moved in did seem counter-intuitive though. The share price jumped before we knew the gold would continue to go out and the fuel would continue to come in.
Mursi or at least a couple of his ministers seemed pro CEY and I thought of their statements as being the MBH put for a couple of months. They appeared to be angling for a hard bargain behind the sense though and the company felt the need to more generous. Luckily even with the unrest, the Sukari gold mine is very remote from Cairo. Also, the gold price doesn’t seem to affect CEY as much as a lot of other miners due to CEY’s relatively low production costs. But alas you shouldn’t forget. However unlikely, CEY are still facing a court case which could send their share price to 0p. Irrespective of how unlikely this is, it’s a good reason why investors are still cautious and the share price remains suppressed. In its yearly statement, management has tried to reassure investors, insisting that the mine is continuing to operate normally and hasn’t been impacted by the crisis in Egypt where several hundred protesters have been killed since the military took over in July and that it remain on track to meet its targets. The company is expecting to meet its planned production of 320,000 ounces of gold at an average cost of $700 an ounce, and while second quarter revenues have been lower due to the weak gold commodity prices Centamin has managed to improve output by 8% over the last quarter. In fact mining activities have continued to improve during the last quarter and Centamin has managed to produce a record 94,000 ounces. Unlike rivals like Randgold and smaller counterpart Avocet , Centamin management hasn’t felt the need to cut costs. Output in 2014 is expected to continue increasing with the company’s long term goal of reaching a production of 450,000-500,000 ounces from 2015 onwards.
But given the cost of production at $700 per oz, no debt, un-hedged, El-Ragghy bought 500,000 shares this year at 47.80p and a low P/E.
I liked this paragraph of the financial report:
- Centamin remains debt-free and un-hedged with cash, bullion on hand, gold sales receivables and available-for-sale financial assets of US$169.4 million as at 30 June 2013.
So as the price of gold increases this one should do ok, providing the appeal is upheld on the Concession Agreement Court Case. If the Diesel Fuel Court Case appeal is upheld that will be a bonus. On that basis I have purchased some more shares, will keep an eye on RNSs but for the meantime stick them in a drawer for the future.
But is it the fundamentals or technicals which are driving the share price?
As another blogger has pointed out:
the fundamentalist…who ‘presumes’ that the fundamentals drive the shares…
With Centamin…record production profits…very little effect…
State of emergency in Egypt bordering on civil war…zilch effect…
In fact…the shares seem to climb as unfortunately the ‘body-bags’ increase in number…even surprised Guessti TA guru mate that one…
What if the mine was nationalised ?….some may ask.
My answer is….look….mines have been ‘snatched’ in far safer places than Egypt…and will be again.
If one’s worried about this one shouldn’t even invest in gold mines…if it happens it happens…and it brings us back to only investing money one can afford to lose. It’s not about ‘law’…look where Morsi is now……he thought he was the law…
As long as the company is publicly traded…..focus on what those traders are doing…..not what you think ‘might’ happen in a worst case fundamental scenario.
But to conclude a play on Centamin is mainly a play on Egypt both in terms of country stability and the court case with 20% resting on what happens at Sukari which most analysts agree is an excellent operation. It took Algeria ten years and lost of over 200,000 lives to restore some sort of peace. Egypt could be worse than that if the Brotherhood are dissolved as they are powerful and well supported. The best way forward is through negotiation and inclusion of all parties but we will see…