Centamin PLC (LON:CEY) saw its shares plunge in mid-morning trading Friday as it forecast a weaker second quarter as low grades persisted at its flagship Sukari gold mine in Egypt.
The FTSE 250 gold miner said underground production at the mine was 10% below forecast, with production equipment availability resulting in lower production ore tonnage mined and subsequently development tonnage mined increased, resulting in a 50:50 split.
READ: Centamin PLC boosts gold production at Sukari
Centamin added that the development grade had been lower than budget and increased tonnes came from the accelerated development to access future stoping.
However, the firm also said production equipment availability was now improving and ore tonnes from stoping would increase back to the previous 60:40 split, stoping to development tonnes.
At its open pit, the group said total tonnage mined was ahead of schedule, although grades continued to be below budget due to progress through the low grade transitional zone of Stage 4A.
Centamin said that grades from the open pit were forecast to increase in the third quarter.
As a result of the persistent low grades, the group said: “production guidance for 2018 from Sukari has been revised to between 505,000 and 515,000 ounces, at a cash cost of production of US$625 to US$640 per ounce produced and an all-in-sustaining cost of US$875 to US$890 per ounces sold.”
They added: “The updated mine plan forecasts a weaker Q2 and strong Q3 and Q4 production profile.”
The forecast will come as a disappointment following a strong first quarter for the company, where it reported that the Sukari mine had increased its quarterly production by 6.5% to 125,268 ounces of gold.
Centamin will release its results for the second quarter on 9 July 2018.
In a note to clients, analysts at Shore Capital commented: “The chief reason for the downgrade (we believe) is “persisting low grades” from the transitional zone in the open pit. We had originally inferred inadequate drilling, and this was subsequently confirmed by Centamin at the Q1 2018 financials. The open pit is on a hill, drill spacing in the higher areas was “limited and restricted”, and the transitional zone was turning out to be 15-18m thicker than modelled. Given today’s disclosure, we suspect that the transitional zone might be still thicker.
They added: “Bearing in mind Centamin’s strong operational cashflows, we were surprised that the company had not decided to revisit the transition zone and invest in more drilling, ahead of mining. This rookie-level ‘error’ is more the sort that might be expected of a cash-strapped junior miner starting up operations, and suggests to us that some level of ‘resting on laurels’ (i.e. complacency) might have set in.”
Artjom Hatsaturjants, research analyst at Accendo Markets, said: "The stronger USD is already representing a headwind for safe haven yellow metal even with the revival of geopolitical concerns. Today’s news sees Centamin’s share price accelerate its retreat from recent highs, investors jumping ship amid a more uncertain outlook, sceptical about H2 production being able to make up for H1 shortfall."
Centamin shares were down 17.2% at 131.8p.
--Adds analyst comment and updates share price--