At just 80p, is now the time to buy Centamin shares?

In a year in which mining stocks have gone from strength to strength, Centamin shares have slumped. So, is this an opportunity to buy?

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Centamin (LSE:CEY) shares have underperformed this year. That might surprise some investors considering that other mining stocks have soared. But the gold miner recently announced a big hit to profits for 2021.

So, is this stock right for my portfolio?

Recent performance

In 2020, the Centamin share price stood at over 200p a time. But today, it’s struggling at just 80p.

In April, the Jersey-registered miner said that full-year profits had halved on the back of forecast lower revenue and an impairment on assets in Burkina Faso.

This has resulted in return on capital invested falling from 19% five years ago to 11% now. That’s below the industry average of 15%.

However, its worth noting that 2021 performance was roughly in line with pre-pandemic levels.

Prospects for 2022

Things could be looking up for Centamin this year.

Firstly, gold prices are up year-on-year.  In the first quarter of 2022, Centamin achieved $1,883 per ounce, up from $1,778 in Q1 of 2021. Currently, the spot price for gold is $1,841. 

I also think gold prices could rise further in the coming months. We’ve got a toxic blend of inflation, worsening economic indicators and ever-increasing geopolitical tensions. These factors could push demand for gold, and its price, up.

Centamin has also forecast higher gold production this year. The company expects production to be between 430,000 ounces and 460,000 ounces in 2022. That’s up from 415,370 ounces for 2021.

Cash costs per ounce produced are likely to be between $900 and $1,000. All-in sustaining costs were expected to rise to $1,275-$1,425 an ounce sold.

By comparison, 2021 Q4 cash costs came in at $972 per ounce produced, while all-in sustaining costs were $1,256 per ounce sold. Inflating cash costs may prove problematic.

But on the whole, the signs suggest that 2022 should be a more profitable year for the gold miner. I am slightly concerned about the impact of Chinese lockdowns on commodity prices, but I think that will hurt other metals more than gold.

Long-term prospects

Centamin is investing heavily right now. Q1 marked peak capex for 2022, and production should increase later in the year and beyond.

It has been investing in a solar farm and is working on a plan to expand its largest asset, the Sukari mine in Egypt.

The company recently transitioned to owner-operator mining in Sukari underground. The move away from contracting a partner company could deliver savings of $19m per year from 2023 onwards, Centamin said.

Should I buy?

Is this one right for my portfolio? I’ve actually already bought Centamin stock. I’m down a little, but I’ve received a dividend payment and I’m in this stock for the long run.

Costs might be rising, but Centamin has an attractive portfolio of assets which I expect to deliver in the long run. I’m glad to see the company embarking on a long-term cost-reduction strategy.

It currently has a price-to-earnings ratio of around 11. That’s slightly lower than the industry average.

At 80p a share, I’d buy more Centamin shares.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

James Fox owns shares in Centamin. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

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