Centamin earnings squeezed by rising costs and falling gold price

Gold production from the Sukari field in the three months to 30 September reached 105,413 ounces, which was up 13% on the same period last year and line with the second quarter of 2015.

But the cost of this production climbed to $767 per ounce and all-in sustaining costs to $918 per ounce, versus the $706 cash and $853 all-in costs in the previous quarter.

Production guidance for the year was unchanged at 430,000-440,000 oz with cash cost predicted to be below $700 per oz and AISC of $950 per oz.

Meeting this target requires fourth-quarter production of 108,600-118,600 oz.

While revenues were slightly higher on the previous year, earnings before interest, tax, depreciation and amortisation (EBITDA) slumped 16% to $31.3m as the 5% reduction in gold prices bumped into the higher cash costs.

Earnings per share plunged two thirds to 55 cents as the EBITDA fall was compounded by a 36% increase depreciation and amortisation, following the reserve update in June and a consequent increase in the amortisation charge for capitalised underground development.

There was no real update on its ongoing legal wrangles in Egypt apart from to remind shareholders that operations continued as normal and that it acknowledged the "potential for the legal process in Egypt to be lengthy and it anticipates a number of hearings and adjournments before decisions are reached".

Chief executive Andrew Pardey said production was continuing to build on the progressive ramp-up of the expanded operation at Sukari, with plant productivity remaining significantly above capacity, allowing for an easy delivery of fourth quarter targets.

"The underground mine has now delivered consecutive quarters at production rates significantly in excess of our annual forecast and at consistent grades of at least 6g/t, therefore demonstrating the potential for this part of the operation to sustain production in excess of our longer-term forecasts," he added.

"Further development of the open pit has now set the stage to deliver the required tonnages at grades in the region of the reserve average from the fourth quarter onwards."

Analysts at Shore Capital noted that operational cash generation remained reasonably strong, albeit markedly lower, to increase the cash balance to $190.6m at period’s end from US$175.0m at start of period. The balance sheet remains in very good health, with current assets far exceeding both current and total liabilities, they added.

Shares in Centamin were down nearly 6% to 58.95p by 1110 on Wednesday.