In my opinion, Centamin (LSE: CEY) is a company whose share price could gain some serious momentum in April.
A key driver for bullion prices in recent times has been the possibility of economic and political meltdown in the event of a protracted and/or destructive, disorderly Brexit. And I expect tension over the UK’s withdrawal from the European Union and its future relationship with the continental club to keep driving demand for safe-haven assets like gold for a little while longer, at least.
The planned exit date of March 29 (which had been etched into our collective consciousness over the past two years) has been kicked a little later down the road — April 12, in fact — yet Westminster remains gridlocked over how to negotiate a European exit.
In fact, the failure of the Commons last week to form a majority for any type of withdrawal deal suggests things will go right down to the wire in mid-April again. So entrenched are both Hard and Soft Brexiters’ positions by now that a breakthrough remains some distance away. So the prospect of an extra-long Article 50 extension, or a catastrophic no-deal Brexit, remain very much in play. In this environment there’s plenty more scope for gold to keep rising and to drag the share prices of the likes of Centamin with it.
On the ropes
After getting off to a flyer in 2019, investor appetite for the gold digger worsened considerably in the wake of late February’s full-year financials. As I type, Centamin is down 15% for the first three months of the year.
The market remains spooked by possible lower production levels at Sukari after the severe output problems of last year, troubles which caused group production to drop 13% year-on-year to 472,418 ounces.
And while Centamin appears to be past the worst, guided production of between 490,000 and 520,000 ounces for this year — disappointing estimates which prompted the shareholder exodus last month — illustrate the ongoing challenges the business faces at its flagship Egyptian mine.
5.5% dividend yields!
Clearly, the mining giant isn’t without risk. But I believe it could still gain short-term momentum on the back of those Brexit issues, not to mention the uplift from an array of other severe geopolitical and macroeconomic troubles. That includes the currency meltdown in Turkey, a string of worrying datasets from China, and signs of hardening relations between North Korea and its historical rivals the US and South Korea.
But over a longer time horizon, the outlook for Centamin remains bright, thanks to the quality of its Sukari asset and, further out, the contribution of other top-class assets such as those in the Côte d’Ivoire as underlined by recent exploration work. It’s why City analysts expect the business to roar back from a predicted 5% earnings drop in 2019 with a 23% rise next year.
I reckon investors should use recent weakness in the share price to snap Centamin up ahead of what could be a critical month for gold prices. And one final reason to buy into the company? Gigantic dividend yields of 3.8% and 5.5% for 2019 and 2020, respectively.