Canaccord upgrades Centamin, expects production guidance to be exceeded

10th Jul 2015 09:12

Broker Canaccord has upgraded Egyptian gold miner Centamin to 'buy' from 'hold' and lifted its price target to 75p from 70p.The FTSE 250 company on Thursday reported a 33% increase in gold production from its Sukari mine in the second quarter and forecast third quarter output of 103,000oz and 120,000oz for the fourth, increasing its full-year guidance to 430-440,000oz from 420,000oz.Based on conversations with the company, the Canadian broker said that it was now "apparent that the company was taking a conservative approach to its guidance" and expects the miner to beat its third quarter and full-year guidance.With greater production, Canaccord has also revised down its estimate of all-in sustaining costs to US$921 per oz.Having also reviewed its gold price assumptions based on the forward curve, the broker has applied these modest downgrades to its forecasts, with the price of gold expected to average $1,185/oz and US$1,171/oz in 2015 and 2016 respectively.With increased production estimates and lower unit cost assumptions for 2015, analysts crunched the numbers and increased its estimate for earnings before interest, tax, depreciation and amortisation (EBITDA) for 2015 to $212m from $194m and its earnings per share (EPS) estimate increases to $0.10 from $0.09.However, with a modest reduction to its longer-range gold price assumptions, estimates for 2016 and 2017 decline modestly."We have increasing confidence that the company will be able to meet its medium term guidance of 450-500,000oz, while potentially achieving greater production in the longer term," the mining analysts wrote."At the same time, we anticipate that company will be able to maintain a relatively low cost base. We therefore believe that the company will exceed current guidance, both in terms of higher production and lower unit costs."As a result, the calculation of the company's net asset value, at a 5% discount rate, has increased from 71p to 74p and with it the target price.