How Centamin can rebuild investor confidence

Centamin has slashed full-year production targets for its Sukari gold mine in Egypt by as much as 12%. It blames reduced monthly plant productivity during October and lower expected average grades for the fourth quarter from underground development ore. A weak gold price doesn't help either, so little wonder the shares have been hammered.

Output at Sukari is now expected to be between 370,000 and 380,000 gold ounces at a cash operating cost of $700 per ounce; that's up 4-7% on 2013 production of 356,943 ounces. "A disappointing development, we hope that they're not back to their bad old ways of over promising and under delivering," says Investec Securities.

Alison Turner at Panmure Gordon is not impressed:

Following the third-quarter production figures last month we flagged the strong likelihood of a miss and questioned why the company did not change guidance then. Changing it so much so late in the year (having told us just a month ago they were on track) will not help investor confidence at all.

Clearly, Centamin has much to do to restore investor confidence. The share price has plunged by over 40% since the summer near to a 2014 low. However, the miner has, at least, been granted the increased explosives permit and still expects record quarterly gold production at Sukari during the fourth quarter. That means on an annualised basis, Centamin should hit a forecast post expansion production rate of 450,000 to 500,000 per annum. That's why Panmure still thinks the shares are worth 90p longer term.

Westhouse Securities analyst Rob Broke remains chipper, too:

While not unexpected, the scale of the revision to guidance is disappointing, and will be met negatively we believe. However, the more important issue is the run rate which can be achieved over the last two months, as it will give a better picture as to what to expect in full year 2015 and beyond. We continue to believe Centamin can outperform its post-expansion guidance and maintain our longer-term focused Buy recommendation, but reduce our target price from 70p to 65p following this announcement.

We'll hopefully hear more about that reduced plant productivity in third-quarter numbers due on 14 November.

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