Egypt: #Centamin Operations suspended

Bad news for Centamin shareholders. Operations halted. This note from Canaccord Research 

Centamin

UK and European Research | Hold | Target 40p | 13 December 2012

Basic Resources - Mining - Gold Mining

Operations suspended

What's new?

Centamin has suspended operations following an inability to export gold and a lack of fuel supplies, combined with a claim for $65m to back-pay fuel subsidies from 2009.

Impact on the Canaccord Genuity view

The squeeze on working capital and the apparent rapidly deteriorating business environment has forced the company to suspend operations. The mine has been placed on care and maintenance until the gold sales and fuel supply issues are resolved.

(1) We note that the group was relatively well funded at the end of September, holding cash of $125m, gold sales receivables of $27m and bullion on hand of $22m, totalling $174m or 10p per share. While there would have been major movements in these levels during Q4, given recent issues, we see this 10p level as a floor, suggesting maximum downside is around the c. 80% mark.

 (2) We expect that due to the requirement for government to endeavour to sustain conditions to attract foreign investment, it is possible that the export and supply issues may be quickly resolved, but confidence in Egypt continues to edge lower.

Valuation

Centamin traded at 0.43x NAV (spot, 5%) yesterday comparing to the global junior producers average of 0.66x (and intermediate producers at 0.85x). However with limited marginal buyers, we think it is possible that the share price could move down by up to 80% today, with 40% being the mid point and most likely scenario, which would represent a P/NAV of 0.25x (spot gold).  
Given uncertainty we downgrade to a Hold (from Spec Buy) and reduce our target price to 40p share (from 110p) by reducing our target price multiple to 0.25x from 0.65x (at peak gold price of US$2,000/oz).

Share performance catalyst

Restart of operations and gold exports.