At the current 130p, shares in Centamin PLC (LON:CEY) have now given up nearly all the gains they’ve made since the beginning of the year - an unexpected and dramatic underperformance from one of the largest pure-play gold producers listed in London.
The effective flatlining of the share price has come at a time when gold has soared from less than US$1,500 per ounce to the current levels some way north of US$1,900.
The reason is simple enough, though: the company is now saying it will produce around half as much gold from its Sukari mine in Egypt during the fourth quarter of this year as it thought it would. That in turn translates into higher unit costs and lower cashflow, and the effects of rejigging the mining schedule, which has been necessitate by instability in the Sukari pit will be felt in coming years too.
New chief executive Martin Horgan is now trailing what he calls an “asset life” update that will be forthcoming in December, all of which have led investors to wonder, quite simply, what is the point of Centamin?
After all, the context in which that question is being asked is the best gold market anyone’s known in years, a market in which even if you just hold physical gold you’re up by more than 20% since the start of the year. Holding physical is traditionally thought to be a more cautious approach in the mining world, where actual miners traditionally offer much greater upside due to their operational leverage.
Thus, since the start of the year, African Barrick (TSE:ABX) has risen by around 40%, Newmont (NYSE:NEM) by more than 40%, and Endeavour Mining (TSE:EDV), a company which made a tentative offer for Centamin earlier in the year, by a similar amount.
But in a sense, this just goes to illustrate the point. In a buoyant market investors have plenty of choice. Those that underperform will very quickly be left behind.
For a while, Centamin was somewhat insulated by its unique status in London, following the departure of Randgold and the Russian taint on all the remaining peers. But now, companies are wising up to the apparent vacuum in London.
First Australia’s Resolute Mining (ASX:RSG)(LON:RSG) took a dual listing, and now the well-established mid-tier Yamana Gold (TSE:YRI) has come to town too. Amidst a peer group like this, Centamin could very quickly find itself dropping down the rankings.
As it stands, Horgan brings immense goodwill from the wider mining sector with him into the job. But he’s going to have his work cut out.