Goldman Sachs sees upside risks to production at Centamin

Analysts at Goldman Sachs told clients Centamin was their top-pick in the precious metals space as its open pit grade begins to ramp up in the second quarter of 2017 - with posible upside to production targets - and ahead of the likely return to investors of most of its cash.

The company's Tier-1 asset and strong balance sheet mean it is best placed as the market moves into a 'risk-off' mode, the analysts said.

Furthermore, the fact that it has no growth projects in the pipeline means the majority of its cash will be headed back towards investors.

Hence too the broker's decision to stand by its 'Conviction-list Buy' recommendation on the shares.

Goldman Sachs estimates a dividend yield of 3.9% for Centamin over the next two years, versus the 2.3% and 2.6%, respectively, for 2017 and 2018, on offer from its peer group.

Yes, the company's output fell short of forecasts in the first quarter, but Goldman expects Centamin to reiterate its full fiscal year guidance when it updates investors on 3 May.

Management are also expected to stress the ramp-up in grades.

"In fact, we believe that there are upside risks to production as the grade ramps up.

"In terms of longer-term catalysts, we believe an increase in milling capacity should drive an increase in production. Additionally, an update on the second decline at Sukari, which could increase production significantly at minimal capex, is another catalyst," they added.

Using a 50-50mix of price-to-earnings (15 times 2017 profits) and net asset value (1.0 times) yields a 12-month target price of 215.0, up from 200.0p the last time around, Goldman says, adding that the new target includes the first quarter production results and then current commodity prices and FX.