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UPDATE 1-Centamin profit up as production jump offsets weak prices
March 24, 2014 / 11:21 AM / 4 years ago

UPDATE 1-Centamin profit up as production jump offsets weak prices

* Company to outline dividend policy later in year

* Confident of positive outcome in court cases

* Egypt operating environment improves

* Shares up 7.8 pct (adds Centamin executive comments, details, background)

By Silvia Antonioli

LONDON, March 24 (Reuters) - Egypt-focused gold miner Centamin is on track to boost production further, it said as it posted 1 percent rise in full-year core profit after increased output offset a sharp fall in gold prices.

Many gold producers have been battered by last year’s 28 percent dive in bullion prices, which caught them by surprise and put balance sheets under pressure.

Centamin, however, was able to offset a 17 percent drop in its average realised prices in 2013 with a 36 percent output increase to 357,000 ounces, beating its production targets.

Earnings before interest, tax, depreciation and amortisation (EBITDA) were a little more than $234 million for the year to Dec. 31, slightly below analysts’ expectations of $239 million, according to Reuters I/B/E/S.

The company said the expansion of its Sukari mine in Egypt will help to boost output by 18 percent this year to 420,000 ounces, reaching 450,000 to 500,000 ounces a year from 2015.

Sukari, the first large-scale modern gold mine in Egypt, emerged largely unscathed from political turmoil in Egypt over the past two years and Centamin said the operating environment in the country had improved greatly from 2012.

RISKS REMAIN

The company’s reliance on Egypt is not without risk, however, and it continues to seek resolution to legal battles over its right to operate Sukari and the suspension of fuel subsidies it received from the Egyptian government.

The company’s head of business development, Andy Davidson, said it has the support of the government in the Sukari case and is confident of a positive outcome. It is hopeful of reaching a compromise on fuel subsidies, he said, perhaps in the form of a credit rather than cash payments.

Centamin is also awaiting a licence from the government to allow it to use more ammonium nitrate as it steps up its mining rate.

The market reacted positively to the earnings report, with the shares climbing 7.8 percent by 1115 GMT - the biggest gainer on the FTSE 250 index.

“In our view, Centamin remains a good-value exposure, albeit higher-risk with the potential for tail outcomes from the legal issues,” Nomura analysts said in a note.

The company, which in December made an all-share takeover offer for Burkina Faso-focused gold explorer Ampella Mining, said it plans to continue to diversify through acquisitions in the Middle East and Africa.

The miner said it will outline its dividend policy during the course of the year as its expansion programme moves towards completion.

“Centamin remains well placed to declare dividends in the future, though our estimates are that this is likely to happen in 2015,” Peel Hunt analysts said. (Editing by David Goodman)

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