City analysts say buy Centamin Egypt as stock falls over 25 pct

arlier today Centamin cut its 2011 production forecast by about 18 per cent, from 250,000 ounces to between 200,000 and 210,000 ounces of gold, as the limited availability of explosives hampered the mine’s output in the second quarter.

The City’s mining analysts have come out in support of Centamin Egypt (LON:CEY) by calling this morning’s 25 per cent share price fall a buying opportunity.

Earlier today Centamin cut its 2011 production forecast by about 18 per cent, from 250,000 ounces to between 200,000 and 210,000 ounces of gold, as the limited availability of explosives hampered the mine’s output in the second quarter.

On the London Stock Exchange the news sparked an immediate sell-off and the shares dropped sharply reaching a low of 98p a share. By Lunchtime the stock was down 32.7p, about 24 per cent, and shares were changing hands at 105p.

However against the backdrop of near record gold prices, above US$1,600 an ounce, and the discount that’s already being applied to gold stock, the City’s analysts still think investors should buy Centamin shares.

“We would see any weakness in the CEY share price as a consequence of the downgrade as a buying opportunity,” Investec analyst Hunter Hillcoat said in a note to clients. “We see CEY as offering the best value among the gold companies we cover.”

Investec rates Centamin as a ‘buy’ with a 165p price target.

Ambrian analyst Adam Kiley kept his ‘buy’ recommendation for Centamin but snipped his price target from 182p to 167p a share.

“We highlighted short-term concerns over production output at Sukari and uncertainty on the timing of underground production.  Consequently, much of this production shortfall and the increase in the cash cost forecast for 2011 was factored into our financial model,” Kiley said.

“We also highlighted some short-term uncertainty due to the Egyptian national elections in September.”

The analyst added: “We believe that short-term share price weakness over the coming months will offer a discounted opportunity to buy into a world-class asset.”

Evolution’s Louise Collinge said: “Centamin’s share price still reflects Egyptian political risk, which does not make a good combination with the operational risk which the market will price into the shares today on the back of this production downgrade.

“Our Add recommendation reflects the long term potential of Sukari, although we expect near term fall-out from today’s announcement."

Evo has a 175p target for Centamin.

Similarly Collins Stewart analyst John Mcgloin told clients: “We continue to recommend the stock as a buy, however with the second cut to guidance this year, we are likely to see weakness in the stock in the short term.”

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