RBC Capital downgrades Centamin after production forecast cut

RBC Capital Markets downgraded its stance on Centamin to 'sector perform' from 'outperform' on Friday after the gold miner cut its full-year production target as it posted a drop in quarterly output.

The bank, which also cut its price target for Centamin to 105p from 135p, said it was lowering both operational expectations and its multiples.

RBC said a second surprise downgrade to annual production was disappointing on a number of levels, with the underground dragging on numbers again. Whilst there was a quarter-on-quarter improvement and exit rates on grade look OK, RBC said the appearance that management had little visibility at the time of the second-quarter downgrade is a worry.

The bank acknowledged that mines need to be run on a long-term view and not for a quarter. However, it argued that careful messaging around operational volatility is crucial, particularly in the mid-cap mining space. It added that given the year-to-date performance at the Sukari mine in Egypt, the fact that Centamin has not guided or given a range on 2019 or 2020 production is a negative.

"Whilst there is implied upside on paper, two downgrades to FY guidance this year and a lack of visibility into 2019 means shares may trade in line with peers with risk to the downside near term. We prefer EMEA peers Fresnillo and Polymetal here."

Earlier on Friday, Centamin it was cutting its annual production target as delays in planned operational improvements led to a 25% drop in third-quarter output. The company cut its 2018 production target to about 480,000 ounces from August estimates of 505,000-515,000 ounces.

It said third-quarter production at its Sukari mine fell to 117,720 ounces from 156,533 ounces year-on-year.

At 1440 BST, the shares were down 18.2% to 88.95p.