When I wrote about the Centamin (LSE: CEY) share price a few weeks ago, it was still very much a penny stock. But come March, and it has breached those levels. This is a textbook reaction for a gold mining stock at an uncertain time. As the geopolitical situation between Russia and Ukraine creates nervousness for investors, gold prices are on the up. In the past month alone, gold has risen by almost 15%.
Why the Centamin share price might not continue to rise
The Centamin share price is directly correlated to that of the precious metal. Both the demand for the company’s product and its value is rising, so clearly investors anticipate a positive impact on its performance as well. I agree that might be the case. But that is only so far as both the increased demand and the price rise can be sustained.
As things stand, I am not so sure that this will happen, though. As I write in another article today, much like it is possible that a gold price rally could continue if tensions escalate, the metal’s price could deflate if peace returns quickly, as well. And it is to all of our benefit if it does. Not the least because Russia is a fuel supplier and these are still cold months, when gas is needed more than during warmer weather. My point here is, that if I were to buy Centamin today, it would not be because I believe the gold price rally will continue.
What I like about the FTSE 250 stock
It would be because of other reasons, like its dividends. The company’s yield is not too bad at around 5% right now. This is more than double that for the FTSE 250 index as a whole, of which it is a constituent. Moreover, it has sustained this yield for a few years now, which gives me some confidence that it could continue to do so in the future as well.
Also, its market multiples are not too bad. It has a price-to-earnings (P/E) ratio of around 11 times. Of course it is much higher than that for another precious metals miner Polymetal International, which has seen its P/E dwindle to one. But that is because it has Russian interests. At the same time, it does not seem high to me considering not just its dividends but also the fact that it is a hedge against both stressed geopolitics and inflation.
What I’d do
In fact, it is the very idea that this FTSE 250 stock could be a good inflation hedge that led me to anticipate its price will start rising. And as things stand, prices could indeed continue to rise, creating more uncertainty. Its recent performance has been underwhelming, but that could change too. In my last article I had intended to buy it when it was still a penny stock. I missed that boat! But I now intend to catch it as soon as I can. Centamin is still a stock to buy for me.
