I’m investing in stocks to make my money work and hopefully deliver inflation-beating returns. Today, I’m looking at two gold mining stocks, Centamin (LSE:CEY) and Polymetal (LSE:POLY). Centamin is offering an attractive 8% dividend yield while Polymetal looks cheap with a price-to-earnings (P/E) ratio of just 1.7. So, are these stocks right for my portfolio?
Mining stocks have done well this year as commodity prices soared. However, the past year has not been kind to Jersey-registered Centamin. The share price, which stood at over 200p a share in 2020, is now just 87p. In April, it said full-year profits had halved on the back of forecast lower revenue and an impairment on assets in Burkina Faso.
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However, 2021 performance was roughly in line with pre-pandemic figures after a bumper 2020. And more positively, 2022 is forecast to be a better year. Gold production is set to rise this year having fallen to 415,370 ounces for 2021. Centamin said production is expected to be between 430,000 ounces and 460,000 ounces in 2022, with cash costs of $900-$1,000 per ounce produced.
Projected cash costs are roughly in line with 2021. Fourth quarter cash costs stood at $972 per ounce produced, and all-in sustaining costs were $1,256 per ounce sold. Profits will depend on gold prices but the current spot price is higher than the average price achieved in 2021.
The falling share price has made the firm, which operates the massive Sukari gold mine in Egypt, look more attractive to me. It has a P/E ratio of just 12.2 and offers a dividend yield of 8%. Falling gold prices could hurt profitability here – we may see commodity prices fall on the back on sustained lockdowns in China. Meanwhile high inflation levels, globally, could increase costs. Despite this, I’m backing Centamin and will look to add it to my portfolio.
Based on the previous year’s performance data, Polymetal has a P/E ratio of just 1.7. That’s either astoundingly cheap, or an indication that something isn’t right. In this case, the incredibly low ratio reflect the risks associated with its ability to operate as usual following Russia’s invasion of Ukraine.
Polymetal, which has mines in Russia and Kazakhstan, has highlighted uncertainty around funding as a result of sanctions placed on Russian banks and the state as a whole. Balance sheet constraints have exacerbated funding issues. There are also concerns that as Russia becomes more isolated, Polymetal may find it hard to sell its gold and other products. Fellow Russian miner Petropavlovsk has already noted issues selling its gold after its main customer, Gazprombank, was placed on a European sanctions list.
However, I’m bullish on Polymetal. Despite these issues, it should remain a top-10 global gold producer and top-five global silver producer if it can continue producing at the same levels. The miner said it expects to produce 1.7m ounces in 2022 — a figure similar to 2021. It has an attractive portfolio of assets and these are expected to yield high long-term returns.
In the first quarter, production fell 6% but revenue rose 4% year-on-year to $616m, driven by higher prices. It may well be the case that the fall in production wasn’t a result of the geopolitical situation. Petropavlovsk actually announced that production had increased, despite the war.
I held Polymetal shares before the war but recently doubled my holding after the price collapsed.