Shares in gold miner Centamin (LSE: CEY) have crashed today. As I write this, Centamin’s share price is down 22% to 157p.
So why did the FTSE 250 gold miner’s share price crash? And what should an investor do about it?
Centamin: Reduced production outlook
The reason behind the miner’s share price tumble today is that the company has announced it is reducing its production forecast for the fourth quarter of 2020.
In an operational update, Centamin advised that it has detected movement in a localised area of waste material in its Sukari mine. As a result, it has decided to immediately defer open pit mining operations in this zone. This decision is a preventative measure to protect the health and safety of its workforce and the long-term potential of the Sukari gold mine.
It expects that production for the fourth quarter will be reduced to approximately 70,000 ounces. That compares to preliminary gold production for the third quarter of approximately 120,000 ounces.
Gold stocks are a risky way to invest in gold
This update today from Centamin is a great example of why I don’t invest in gold stocks and generally advise investors to steer clear of them.
Gold stocks like Centamin can perform well when the gold price is rising. The higher the gold price, the higher the potential profits for a gold miner. But there’s no guarantee they will perform well. This is because there are so many moving parts to a gold mining company from an operational point of view. So many things can go wrong.
All it takes is one operational blip, like we have seen today from Centamin, and the share price of a gold mining stock can crash 20% or more in the blink of an eye. A setback or delay in production can result in nasty losses for investors, even if the gold price is rising.
I learned this the hard way. A little over a decade ago, I owned a number of gold mining stocks. Most turned out to be very poor long-term investments. Today, I avoid the sector completely.
Better ways to make money from shares
If you’re looking for growth stocks, my suggestion is to forget about gold mining stocks and focus on stocks in other sectors of the market. Gold stocks are just too unpredictable.
One sector that offers a lot of attractive opportunities right now is technology. Many UK tech companies are benefiting from the digital revolution the world is experiencing. Some names that stand out to me in this sector include ASOS and Boohoo, which are both benefiting from the shift to online shopping, and Softcat and Gamma Communications, which are both benefiting from the work-from-home trend.
In my view, these kinds of highly profitable businesses are much better long-term investments than gold stocks such as Centamin.
